Examination of Witnesses (Questions 69-79)
MR ADRIAN
WILKES, MR
PETER YOUNG
AND MR
IAN DICKIE
3 FEBRUARY 2009
Q69 Chairman: Congratulations on overcoming
the terrible hazards this morning! We have half an hour as we
have the Minister coming at eleven, so we will have to be quite
brisk and disciplined, so I will leave it to you to decide how
you want to allocate questions. Do not feel, all three of you,
you have got to answer every question from this side. Perhaps,
to begin with, you could just give us your impression of how business
sees the environmental aspects, such as they were, of the Pre-Budget
Report both from the point of view of the environmental industries
themselves and perhaps also from the point of view of business
as a whole.
Mr Wilkes: Firstly, apologies
from my colleague William Averdieck who is stuck in the snows
of Norfolk. He runs an air pollution control company who export
a lot, so it would have been useful to hear from him. The Environmental
Industries Commission of course was set up 15 years ago to represent
this growing new industry and we have been interested in the green
jobs and the New Green Deal agenda ever since and promoting it
widely. To your question, obviously there were some interesting
initiatives and some extra funding on energy efficiency which
is very welcome in the light of the challenge there and indeed
in light of the opportunities, but overall a bit of a damp squib—particularly
when I think of what is going on around the world. This month
we have seen a major stimulus from the German Government on environmental
infrastructure, Korea has announced a green new deal of $38 billion
over the next four years with the intention of creating 960,000
jobs over those four years, the size of the Obama "green
stimulus" as part of the overall package is unclear, but
the reports I get from Washington indicate a figure of about $80/85
billion which would probably be about, if you pro-rata it according
to our economy, something like £8 billion over here. So I
do not think the Pre-Budget Report or indeed any of the current
plans in government meet up to the challenge of the environmental
issues that we, as a country and as a world, face, but, more importantly,
they do not meet up to the opportunities here. We have got a £3
trillion worldwide industry and this country is in that race to
win large market share and we are not grabbing what I have always
said is the lion's share of that market. Germany, for instance,
currently exports about £50 billion worth of environmental
technologies and the latest government figures I have from the
UK are about £10 billion worth, so there is a huge disparity
there and we are missing out on an opportunity, and Germany has
just announced a "masterplan" to make sure it maintains
its world dominance in this area. So yes, disappointing.
Mr Young: At Aldersgate, we represent
all sorts of big businesses, like BT, Barratts, United Utilities
and Tesco as well as quite strong, deep green movements as well,
and it is that common ground that we look at, so our members are
particularly the leaders and they are looking for some short-term
solutions to the short-term competitive disadvantages of being
leaders into the green economy, and really they were underwhelmed
in the extreme by this. As Adrian said, some of the trailing does
give some hope and hopefully there is a lot more to come and this
Low Carbon Industrial Strategy, I think, is absolutely crucial
to that, but in terms of the joined-up thinking from government
that big business is looking for to give more consistency and
more compunction regarding the need to invest and to get early-mover
advantage, this was a really mixed message. There is a little
bit of acceleration, which is good, there are one or two good
ideas in there, but it really is not of the standard which business
was looking at for that. It is that systematic shift really to
moving the tax approach to non-renewable resources, to getting
some urgency behind the need to respond to climate change, that
did not seem to be there. Just to pick up a personal-level example,
the equivocal statement regarding the taxation for vehicle duty
with respect to delaying the differentiation there, when you have
something like that in there, it is a mixed message and we cannot
afford a mixed message at the moment.
Q70 Colin Challen: This recession
is certainly giving in to green investment or talk of green investment.
After the recession is over, is it going to be back to business
as usual or, if not, to what extent can we expect this to become
embedded rather than just a quick-fix kind of political discourse?
Mr Wilkes: Well, of course, sadly,
the amount of green investment that is coming out of the City's
financial institutions over the last six to nine months has been
falling off, and I think the level of investment will always be
determined by the government policy framework. You have got to
remember that environmental issues are essentially a market failure,
that no one owns our climate, for instance and therefore, it is
quite free to pollute it. We do not have a price on the environment
and we do not have a price on our "climate rights",
so they are not factored into our economic system. Unless that
market failure is addressed, whether that is government regulation
in terms of "You must not emit so much carbon" or fiscal
policy by putting a tax on carbon, for instance, or putting in
place a trading scheme if that is deemed more effective, ultimately
you need the government policy framework and, without that, you
will not get the investment. That is the underlying reality and
I always remember getting that message loud and clear when we
organised a meeting with a whole range of City investors 10 years
ago; it was very clear.
Mr Dickie: I would say a few things
about the recession in this context. As well as obviously being
a source of major social problems, it is also a time of economic
restructuring, so the economy is not going to go back to the same
anyway. The fact that it is a time of restructuring is also an
opportunity, so, when you are restructuring anyway, it is easier
to put the changes you want to make in place than when you have
already set off on a course of action. In the context of the fiscal
stimulus package that the Chancellor has designed, you only get
that kind of opportunity to use those resources once at best in
an economic cycle and you cannot keep doing that all the time,
so, if you use those resources to tackle the economic crisis,
it stops you being able to use them to tackle the climate crisis
and, as the previous witness was saying, we urgently need to tackle
both.
Q71 Martin Horwood: Can I just ask
a sort of devil's advocate question to Adrian, in particular.
Is there a slight risk that we have missed the boat already, that
actually economies like China's and Germany's are so far ahead
in photovoltaics and carbon capture and the Danes are so far ahead
in wind power that actually we are not going to catch up now and
that that great green global economy is not really available to
us anymore?
Mr Wilkes: Well, in certain areas
that is certainly the case, but, when you look at the growth projections,
basically the whole world does face not just a climate challenge,
but there are water and air pollution issues as well all around
the world, and they rise up the public's agenda and the politicians'
agenda as a result as people get wealthier and care about these
things. We have got this £3 trillion worldwide market, as
some figures out from the British Government suggest it is currently,
and that could well double over the next 10 years, so you have
got large new market opportunities. And, you have got, in many
areas, novel technologies that are innovated and coming to market.
So the game is still on, absolutely, but that is why it is so
important to move now, as Peter mentioned, to get the first-mover
advantage.
Mr Young: I would just like to
reinforce that. I think there is a lot more to be had there, but
we should also turn and look at where our competitive advantages
can come from and there are three things that I would highlight.
One, in terms of the renewable side, is that we have got some
exceptionally good renewable resources and we must exploit those
in a way whereby the jobs are captured within the UK economy and
that we look at the whole supply chain and the whole skill base
needed to do that rather than come at the opportunity to generate
the energy after other countries have already invested in the
RD&D to provide and sell us, effectively, a black box that
does the trick. I think a second area which is really important
for us is to look at our innovation ability and drive that through
regulation. There is no doubt about it, as has been said, that
the market failures here do need some government intervention
and that we should be able to see clear enough regarding the global
need to address some of these areas and actually put in sufficient
regulations and sufficient activities now to ensure that we create
the early markets that people can move into. I think the third
area is to not expect to pick single winners, but to recognise
that we have to have the ambition to have a whole number of alternative
technologies supported and encouraged so that we definitely pick
those which make the global markets and we do not find that we
have picked the wrong horse. If I give one example of that in
carbon capture and storage, carbon capture and storage technology
is very, very early on at the moment and we actually have the
opportunity and we have the right engineering and science base
to demonstrate all the potential runners on that and prove that
we were there first, whatever they may be, and probably a number
of different technologies will succeed in different parts of the
globe. There is a real risk that we will sit there with only one
chip on the table and it might not actually be the one that wins
the bet and that is a real risk for us in terms of some of those
future markets.
Q72 Martin Horwood: In terms of resource
advantage, you basically mean wind, wave and tidal, do you?
Mr Young: Yes, I think those are
the principal ones, but I think also we need to look at some of
the other things, like we are a very population-dense country,
we have a high intensity of infrastructure, so some of the issues
around creating a devolved electricity network, effectively an
internet for electricity, we are also actually very well-placed
for that because we have not got huge distances, like America,
for example, where it is not going to be possible to do that over
the whole country.
Mr Wilkes: May I just add a supplementary
to that because Peter talked about comparative advantage and one
of the things that has disappointed me is that, for several years
now, I have been asking different bits of government, "Have
you done studies into where the UK has comparative advantage?"
and, if I could humbly suggest, it would be an ideal question
to throw at the departmental witnesses you have. A friendly MP
is now taking this question around this issue to the Treasury,
DBERR and Defra for EIC. This lack of thinking in government reflects
what the previous witness mentioned, an antagonism towards environmental
protection and, therefore, indirectly towards the UK's environmental
industries. There is not enough strategic thinking going on within
government. I always recall when EIC launched in 1995, Gore and
Clinton in America had announced, "Right, this is a big industry",
and they were right, the environmental industry has been growing
ever since, "We are going to dominate it", "We,
America, are going to put in place a strategy, we're going to
pull together all the different bits of government, the export
arm and even the Ministry of Defense", where large amounts
of money are spent on cleaning up land and talking about the development
there of remediation technologies. What we are calling for, we
the Environmental Industries Commission, is for the Government
to put in place an environmental industries strategy. DBERR have
industry strategies for the marine industries, for the defence
industries, but they do not have one for this very rapidly growing
industry, and part of having a strategy would be to look at those
areas where we have comparative advantage and where we have lost
out, going back to your original question.
Q73 Dr Turner: You have put the £535
million package into some sort of international context and clearly
are fairly unimpressed by its scale. Having said that, do you
think that there is enough there to make any difference both to
environmental protection and to competitiveness of the UK? If
it is intelligently used, can it make a difference?
Mr Wilkes: Well, last week when
we launched our Green Jobs Growth Strategy, we called for a £10
billion green jobs investment fund and we were calling for an
increase in low-carbon social housing and energy efficiency combined
with increased tax breaks. The UK has got something called the
"Enhanced Capital Allowance Scheme" which has been in
place for 10 years now, but it is quite narrow in its application
and our industry and our members would like to see that increased
from 100% to 150% to provide a real stimulus to the rest of industry
out there, the problem-holders, to employ new environmental protection
technologies. If we went at it seriously enough, yes, we would
have an impact and that is what is going on around the world.
I was shocked when I heard what Korea are planning. Korea is a
much smaller economy, it does not have an environmental industry
the size of ours. As to your point about whether we can grab future
opportunities, yes we are better placed, but we are in danger
of falling behind. We think, one, you need joined-up government
thinking in terms of a strategy to promote this industry and,
two, you need some funding which is, in our view, a kind of investment
for the future. This investment and where we would like to see
money spent is on what I call "green infrastructure investment".
Q74 Dr Turner: Am I right in thinking
that the sort of money which you think should be spent is going
to be to the order of £8-10 billion rather than £½
billion? Am I right in thinking that, from what you have said
already?
Mr Wilkes: Yes, and it is not
all going to flow to the environmental industry. We are calling
for £6 billion for investing in low-carbon social housing
to put the housing workers back to work.
Q75 Dr Turner: You seem to regard
environmental industries as having a rather limited scope and
you do not seem to show great interest in, for instance, low-carbon
energy amongst your industrial group. How would you spend it?
If you had £10 billion at your disposal, how would you spend
it to greatest effect in saving carbon and providing jobs at the
same time?
Mr Wilkes: Well, you already have
support mechanisms in place to support the renewable energies
industry.
Q76 Dr Turner: But the renewable
energies industry would question the effectiveness of those measures
very seriously.
Mr Wilkes: Are they calling for
big chunks of further public direct investment?
Q77 Dr Turner: In a sense, yes.
Mr Wilkes: Well, our focus is
in the other areas because actually, if you look at what is the
cost-effective way of saving carbon, it is to use energy more
efficiently, so that is why we are focusing on investments in
energy efficiency and investments that combine with the social
need to put the house workers back to work and help people in
low-income housing.
Mr Young: Can I add, from Aldersgate's
perspective, on that question just to broaden it. I think it is
important not to get too distracted by a definition of where this
sort of woolly boundary of the environmental industries is. From
a bigger point of view, to answer your question, where money would
be well-spent right at the moment, from the Aldersgate point of
view, when we produced our Better Regulation for the Sustainable
Built Environment, we highlighted the fact that within the existing
built environment that is where the biggest immediate opportunities
are. If you look at any cost abatement curve, you get a better
return for that side, it is construction industry jobs, it actually
is something where we have to raise our ambition so that we are
not talking the scale that was in the Pre-Budget Report, but probably
an order of magnitude bigger, making the availability of support
for that much more universal. One of the examples in our Green
Foundations 2009 report was Kirklees Borough Council where
they actually adopted that approach and got a far higher take-up
through that because, for an immediate fiscal and job stimulus,
there is an immediate benefit and it actually is improving all
of our results going forward in terms of our impact on climate
change and reducing costs to households and allowing them as well
to be more resilient in difficult economic times, so that would
be just one example to answer the question. Until that job is
done, the more money that can be found to do that, actually the
better the return will be, even in the medium term, so perhaps
two or three years, that is all it will take to recover that cost.
Mr Dickie: If I could quickly
go back to something else you said, you said assuming that this
money is intelligently used, but, to me, it is not being intelligently
used because the changes to the tax system are working in an opposite
direction to the green fiscal stimulus, so the two are working
at crossed purposes inevitably and not using the resources efficiently.
Q78 Joan Walley: You have argued
that regulation is a real driver of the stability for the long-term
investment for the green environmental technologies and yet, particularly
at a time of recession, there is also the case you are arguing
that, if you sort out the fiscal stuff, why not sort out the green
stuff at the same time, but up and down the country chambers of
commerce are saying that they do not like all this regulation
and that is a cost to industry. Basically, the question really
is, playing devil's advocate: what is the answer to all the businesses
up and down the country who are just saying, "We just want
to be able to stay afloat and survive this recession"? I
am just wondering what your answer is to them, and I am also wondering
what interest you have had from the Secretary of State at DBERR
and how much he has engaged with you on this agenda that you are
putting forward.
Mr Wilkes: Well, in reverse order
I have to commend Lord Mandelson for various speeches he has made
over the last few months about his intent to make, I think I am
right in quoting him as saying, "Britain and Europe the hub
for green jobs worldwide". Of course, we are in contact with
his officials about the Low Carbon Industrial Strategy which is
about to be consulted on and the Conservative Party have also
published some detailed proposals. All of that thinking is very
welcome. I understand that the Government's Strategy will be consulted
on in the very near future and it is due to be finalised and launched
some time in the summer, and that will be about a low carbon industrial
strategy for the whole economy. When I was calling earlier for
a strategy for the environmental industries, I was thinking of
a dedicated strategy as part of that overall picture. Going back
to the issue of costs, well, firstly, I guess we need to think
long-term where is our economy going to end up, and it is going
to have to be an eco-friendly economy in the future, there are
no two ways about that, I think, and, therefore, it is all about
how we make the transition there. And, yes, there are short-term
costs, so I think it is up to society and the Government to think
about who bears those costs. One of our proposals, and it has
been ever since we launched 15 years ago, is for the Government
to provide fiscal incentives to help, what I would call, "polluting
industry" to buy environmental technologies to clean up.
You have touched on a very difficult issue, which is who actually
pays for all this, and I think we, as a society, have to address
that and I would propose this one mechanism as one option, But
then I must go back to the key point which has been mentioned
many times, winning early-mover advantage. The future is going
to have to be a kind of ecologically sound economy and, if we,
the UK, move ahead of the other countries around the world, then
we can win large amounts of exports and, therefore, jobs.
Mr Young: I would just like to
add, from the sort of macroeconomy point of view, looking at the
big early-mover companies, again one of the most important things
in those chambers of commerce is talking about the supply chains
in which many of those companies are involved in providing services,
and what we have at the moment is an opportunity to adjust those
supply chains towards a much more resource-efficient economy.
I will give one example at the moment which is taxing a lot of
people, the automotive industry. Now, I have just been talking
to a very major business which is looking seriously at the gap
between the business case for electrifying a huge fleet of vehicles
which ultimately is the only way they are going to decarbonise
the transport impacts which is a huge part of what that business
does. Now, through the electric vehicle network with top-up places,
the design and construction of that, there is a real opportunity
to build a whole new supply chain using our extremely strong automotive
skills and capabilities. What is necessary is something which,
in the short term, bridges that gap so that, for all of those
people further down the supply chain who are currently worried
about their existing demand dropping off, we will not return back
to the same scenario we were in before, but we will return to
a different scenario with a different compunction within transport
and we have to make sure that we capture the jobs here so that
those suppliers and those micro and SMEs that are involved in
that business, and there is a huge number, there are thousands
and thousands of them, as we are discovering through the Reach
Directive, that they are actually aligned to that new market which,
as Adrian has said, is where the export potential is for us in
the longer term by being actually one of the first countries to
be able to develop that approach. We have some companies who are
willing to lead on that once they can make the business case and
that is where the fiscal support is needed in order to leverage
that willingness to take first-mover advantage.
Q79 Joan Walley: So you are actually
talking about a fiscal case, you are talking about getting presumably
something through the Pre-Budget Report which would actually help
to meet that gap and bridge this transitional funding so that
it does then become long-term competitive. I am just wondering
what contact you have got with the Treasury and how you are looking
at the detail of all of this with the Treasury and whether or
not they are as in favour as you are of the tighter regulations
or whether or not there seems to be an attitude that it has been
watered down at this time of recession. That then brings me on
to the way in which the Treasury is, or is not, in your view,
connected with the other departments, so whether or not you have
got an ally, for example, with what is being done in DBERR and
how DBERR is engaging with you on this.
Mr Young: As a former commissioner
of the Commission of Environmental Markets and Economic Performance,
I think one of the key things that we were saying there that led
to the low-carbon economy idea is that we have to get the government
departments working together, and I think you have touched upon
the key problem that is still there.
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