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Memorandum submitted by the Environmental Industries Commission (EIC) (GJS12)
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.
In January we published our "Green Jobs Growth Strategy.[1]
Introduction
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.
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.
For example, 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 economic opportunity.
Government figures show that the UK's environmental industry, which has a turnover of £106 billion (2007/8), currently employs over 800,000 people. The Department for Business, Enterprise and Regulatory Reform estimates that an additional 400,000 jobs could be created in the UK's low carbon and environmental goods and services sector over the next eight years.
One prediction, from Gordon Brown, is that the low-carbon energy sector will employ 25 million people globally by 2050, which he identified as "a chance to create thousands of new British businesses and hundreds of thousands of new British jobs".
This is welcome, but we urgently need action to follow through on these words of political intent. Otherwise Britain will miss out and allow our international competitors to seize these huge environmental markets. First mover advantage rules.
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.
Although we welcome the attention currently being given to climate change and low-carbon industry, climate change is by no means the only important environmental issue, and "low-carbon" is by no means the only important aspect of the development of a green economy. An overall strategic approach to green jobs and skills must address issues related to water, air quality, land contamination and soil quality, and resource efficiency.
It is time for Britain to get serious about ensuring its environmental industry wins the lions share of future global markets.
Government policy approach
1. The 2009 Budget failed to include an ambitious green economic stimulus that would have supported job creation, economic development, and environmental protection. Other countries around the world, from the USA to South Korea, have used multi-billion "green new deals" to create thousands of jobs in their environmental industries - putting them at the heart of the transition to a green economy. Enclosed, for the Committee's information, is a copy of the written evidence EIC was invited to submit to the Treasury Select Committee immediately following the 2009 Budget. This sets out our concerns with the stimulus package announced in the Budget.[2]
2. In general, Government policy is moving in the right direction, but on too small a scale and at too slow a pace. We recognise that the Government has allocated a significant amount of money for delivery of its Low Carbon Industrial Strategy. However, its scale is significant more in relation to previous levels of funding and in relation to traditional Treasury thinking on these issues, rather than in relation to the conclusions of the Stern Report, the Government's emissions targets, the recommendations of the Committee on Climate Change, or the scale of low-carbon fiscal stimulus expenditure in many other countries. There is a need to recalibrate thinking in the Treasury and BERR in order to base policy-making on a realistic appraisal of the scale of the changes now required.
3. EIC is concerned that the approach taken in the Budget is focused very much on assistance to the supply side of low-carbon industry, rather than on stimulating demand through inter alia, a supportive policy framework.
4. EIC is also concerned that the emphasis on "low carbon" is beginning to obscure other environmental and sustainability issues. We believe that there is a need for strategic thinking by government with the aim of promoting and assisting the whole of the environmental technology and services sector. This would be achieved through extending the Low Carbon Industrial Strategy dealing with other parts of the sector, such as water management, air pollution, waste and resource efficiency.
5. A further concern is that the Government may not sustain the action it has announced, seeing low carbon expenditure in the current financial year as a temporary measure in response to the recession. Government should ensure that its assistance to the environmental sector will be continued in future years. This is likely to require a different source of funding, in place of deficit spending, such as environmental taxation, thereby establishing (at a time of recovery from recession) "sticks" alongside "carrots". This should be accompanied by other funding measures, such as the launch of a "Green Bonds" scheme and the establishment of a "Green Investment Bank".
Specific recommendations
6. As aforementioned, EIC believes that the Low Carbon Industrial Strategy (LCIS) should be extended to support the development of the whole environmental sector - to ensure, inter alia, that UK business responds effectively to the opportunities opened up by EU directives on water, air quality, soil, and waste. This should include an announcement of new money for implementation of the Strategy, going beyond what was announced in the Budget.
7. As you will note from our evidence to the Treasury Select Committee, much of the money announced in the Budget was not money directed at stimulating demand for environmental 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.
8. As part of a wider Green Industrial Strategy, the Government should create a £10 billion "Green Jobs Investment Fund" for the 12 months following the publication of the strategy. This should include provision for: · £6 billion to build 50,000 new low-carbon social houses on brownfield sites in - creating/protecting in the region of 160,000 jobs. · £1.5 billion for extra investment in energy efficiency retrofitting of low income family homes - creating in the region of 145,000 jobs. · £1 billion of extra investment on energy efficiency retrofitting of schools and hospitals - creating in the region of 21,500 jobs.
8. The environmental technology and services sector moves forward principally through advances in the regulatory framework. Government should establish new long-term regulatory targets and frameworks to support investment, innovation, and employment creation. These should include: · On carbon management, tightening the new Carbon Reduction Commitment by reducing the threshold from 6,000 Mwh of half-hourly metered electricity use pa to 3,000 Mwh. · On sustainable buildings, establishing mandatory refurbishment standards for both homes and non-domestic buildings (and ensuring enforcement). · In order to improve energy efficiency, using IPPC Directive implementation to require large industrial sites to implement medium and long-term energy efficiency plans. · In order to reduce water pollution, ensuring that the UK meets the requirements of the Water Framework Directive (through adequate investment approved in the next Periodic Review). · In order to improve air quality, introducing a national framework for Low Emission Zones, establishing a nationally recognized standard for emissions and vehicle identification, supported by a national certification scheme of retrofit technologies. This would help create many new jobs in the UK's environment industry. Approximately 3,500 people are currently employed in the UK by the retrofit market. An estimated 80 per cent of the UK's retrofit market is supplied by UK owned companies. The UK's share of this market could increase significantly through effective Government support for the introduction of Low Emission Zones across the UK - helping create many new jobs.
9. EIC would be very happy to provide further evidence on any of these issues. Further recommendations are set out below.
10. EIC is very concerned that the economic problems faced by the brownfield development sector will be compounded by a tax burden the Government is imposing through the replacement of Landfill Tax Exemption for contaminated soils with an extension of the Land Remediation Relief. EIC fully supports the principle of incentivising a move away from landfill to treatment. However, these changes were meant to be revenue neutral - i.e. the extra revenue from the Landfill Tax would be recycled back to the industry through the extension of the Land Remediation Relief. However, this is not the case. EIC members have only been able to identify one site where the extended Relief was likely to be claimable. This means that the change will simply result in a net flow of revenue to the Treasury - and away from brownfield development.
11. The Government should tackle the problem of lack of adequate funding for the development of the environmental technology and services sector by launching a "Green Bonds". The Government should also establish a "Green Investment Bank", aimed at larger scale investors and drawing together expertise in this field.
12. The Government should tackle the problem of lack of adequate skills in this field through increasing support for "green jobs" skills training. A National Skills Council for Environmental Industries should be created, and it is also important to ensure that all existing Skills Councils develop programmes relevant for green jobs. There is a particular need to focus on the design, construction, maintenance, and facilities management of buildings.
13. Government support should give more emphasis to the commercialisation stage of technological innovation, where support is less highly developed than it is for very early stage research and development.
14. The Government should increase the Enhanced Capital Allowance to 150 per cent to provide a real incentive to ensure building owners specify qualifying technologies. EIC is concerned that the level of the ECA allowance does not give sufficient incentive to overcome the complexities of the supply chain, particularly in the key area of energy efficiency in buildings. With an enhanced value over 100 per cent investors would be more keen to obtain the allowance as it would be considered a real additional tax saving, rather then merely a cash flow saving. EIC believe that, by projecting previous trends forward, a 150 per cent this could have the effect of at least doubling the amount of energy and water saving equipment installed.
15. The Budget announced that UK renewable energy projects stand to benefit from up to £4 billion of new capital from the European Investment Bank. However the direct loans available under this scheme are only being made available for programmes costing more than 25 million euros, which will exclude many of the SMEs in the environmental industry.
16. EIC welcomes the Government's far-reaching commitment for all new homes to be zero carbon by 2016. 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. It will also open up huge new global markets for UK business. 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.
17. 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." EIC believes that a Green Industrial Strategy and, if not, the Low Carbon Industrial Strategy, should address public procurement as key area for stimulating demand in environmental technologies,
18. Public procurement could also play a key role in stimulating demand in new technologies for meeting the Government's zero carbon homes target. 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.
19. 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.
20. The 2008 Budget allocation for Defra saw a significant reduction in the money available for business support for resource efficiency. WRAP's budget was cut by nearly a third. Envirowise by 55 per cent - from £22 million to £9.4 million. The National Industrial Symbiosis Programme (NISP) budget was cut by 42 per cent.
21. The Government's report 'Building a Low Carbon Economy' included a commitment to longer-term, better-resourced business support programmes on resource efficiency. In the report the Government highlighted that work is now underway to provide indicative allocations for business support in 2009/10 and 2010/11 as soon as possible. Much of the previous funding was derived from Landfill Tax revenues, which when introduced were to be revenue-neutral. Despite increasing income through annual increases in landfill tax rate, the transparency of this revenue neutrality has been lost through the revenues now being absorbed into overall Treasury pot. Hypothecation of a proportion of the landfill tax sent a strong signal to industry that waste must be reduced. Following the announcement of further increases to the Landfill Tax, EIC believe that the Government must restore landfill tax revenue neutrality and, at the very least, reverse the funding cuts made in 2008.
22. EIC has consistently argued that the current regulatory regime for the Periodic Review creates a "boom and bust" financial climate for the supply chain serving the water industry in the UK as capital expenditure tends to be concentrated towards the end of the five year period. This situation leads to financial and managerial inefficiencies and instabilities in the supply chain and ultimately leads to higher costs for consumers.
23. A consequence has been the migration of skilled resources out of this sector over the years to more stable sectors, where job security is better, resource management is easier and long-term planning can be better achieved, creating a severe and worsening skills shortage.
24. Above all, it is essential to state clearly, and to signal in practice, the Government's intention to pursue this agenda consistently over time. The green economy agenda cannot be an agenda simply in response to the recession, or simply as part of the run-up to the Copenhagen meeting on climate change. It has to be seen as central to a long-run shift in the structure of the UK and other economies, in response to environmental challenges that are similarly long-run in nature. The Climate Change Act is an important step forward in establishing this sort of approach. The green jobs and skills agenda is an essential way of taking it further.
30 May 2009 [1] See http://environment-analyst.com/downloads/EICGrowthPlan2009.pdf [2] Not printed. |