Examination of Witnesses (Questions 64-105)
MR ADRIAN
WILKES AND
MR DANNY
STEVENS
1 JULY 2009
Q64 Chairman: Good morning and welcome
to the second evidence session on Low Carbon Technologies in a
Green Economy inquiry. Thank you for coming this morning. Perhaps
you would like to introduce yourselves to the Committee.
Mr Wilkes: I am Adrian Wilkes,
the Founder and current Chief Executive of the Environmental Industries
Commission.
Mr Stevens: I am Danny Stevens,
the Policy Director for the EIC.
Q65 Chairman: Perhaps I can start
by asking you what you think the main objectives and priorities
should be of any green stimulus.
Mr Wilkes: We have been arguing
ever since we launched in 1995 that the environmental industry
per se was going to be a growth industry. When we launched, the
projections from people like the OECD were that by now this industry
might be worth £500 billion. The latest figures the government
released through consultancy research puts the market at £3
trillion so some of our predictions were cautious, shall we say.
It is clearly a growth industry. I think it is very important
to make the point that there are some very distinct sectors to
it. I know your focus today is on low carbon technologies and
I would just say that there are these other very important sectors
to the broadly defined environmental industry namely water management
(that is a very big sector) and waste management and then you
have smaller sectors like air pollution control (the people who
make the particulate traps that go on all of our London buses
for instance); the technologies that clean up dirty land so that
we do not build on green belt but build on brownfield. There are
these technologies all round the world that are going to be used
if we are going to have a quality of life, not just in this country
but globally. So you have this massive market place; it is probably
about 40 or 50% low carbon and renewables and 50 or 60% of the
others at the moment. Of course all countries as they aspire for
better quality life and a cleaner environment are tackling all
these problems. Low carbon is very important and is probably now
going to be the fastest growing sector so this inquiry is very
timely. To answer your question specifically, we would encourage
a green new deal and indeed the government's industrial activism
and new industrial strategy in this area to embrace all of these
sectors and not just to focus on low carbon because the whole
world is going to need to clean up. Water management is going
to be probably one of the biggest issues in its own right but
is totally interrelated with the problem of climate change. Britain
has an opportunity in all of these sectors and we must not ignore
those.
Q66 Chairman: Do you have a view
on the size and range of such an opportunity stimulus as far as
low carbon recovery is concerned?
Mr Stevens: Do you mean what the
size of the stimulus should have been?
Q67 Chairman: Yes.
Mr Stevens: What we saw out of
the budget was disappointing. It did not measure up to what EIC
was calling for. We were calling for an overall £10 billion
stimulus, as Adrian says, for the whole environmental industry
and not just the low carbon sector. We saw a £1.4 billion
stimulus of new money announced in this year's budget which is
in addition to money that was announced in September for mobilising
private sector investment. The money that EIC was calling for
was for direct government spending to stimulate demand. A lot
of the money announced in the budget is very welcome, for example
£100 million on improving insulation in social housing, £100
million (which I understand will be increased following announcements
this week for new homes) but at higher energy efficiency standards.
What that level of higher energy efficiency standard is remains
to be to seen. That is welcome money but the vast majority of
the money was about either mobilising private sector funding or
trying to stimulate supply. Whereas a lot of what EIC has argued
for over the past 15 years and the money we were calling for as
part of the budget is to actually stimulate demand. It is all
very well and good having money for innovation etc which, as I
say, is welcome but unless there is a demand there for when those
technologies are commercialised and brought to market it is superfluous
(that might be too strong a word to use, but I think you get what
I mean).
Mr Wilkes: I would also point
out that we were criticised by some people in government for being
unrealistic when we called the budget timid and inadequate, a
headline that was picked up by The Guardian in their coverage.
However, I think we were timid in calling for £10 billion,
which was mainly in the area of energy efficiency, because you
had the Sustainable Development Commission, as you all know, who
called for a £30 billion stimulus and the TUC for a £25
billion stimulus. The figures from HSBC which compare stimulus
packages from around the world show that ours is minute compared
to Korea, America and China. China is putting hundreds of billions
of extra dollars into promoting this sector through their stimulus
package. I think the SDC analysis of the stimulus has shown that
if our stimulus package had compared to Obama's in terms of promoting
the low carbon sector then our stimulus would not have been £1.4
billion, it would have been £45 billion a year.
Mr Stevens: I think it is also
worth pointing out that a large amount of the money announced
in the budget was focussed on large scale projects, the carbon
capture and storage demonstration projects and big renewable energy
projects which again, whilst welcome, the vast majority of the
low carbon industry currently in the UK are small and medium enterprises.
For example, one of the thresholds for actually receiving funding
from the four billion euros through the European Investment Bank
is for projects of a value of over 25 million euros. For small
companies developing these new, innovative technologies—whether
they are for buildings or improving the efficiency of transport—that
level of funding just will not register.
Q68 Colin Challen: Can we just clarify
what is mean by environmental industry? I am sure you have criteria
for your membership which defines it, but the reason for my question
is that in a pre-budget report last year the government said that
over the next three years £50 billion from the public and
private sectors will be invested in low carbon economy measures.
Then you find, reading the fine print, that it includes just about
anything at all which might be a bit less carbon intensive than
something else, so you could include CCS if you wished, or you
could even include a new coal fired power station with CCS, always
provided it was a bit more efficient than the previous model.
What is your definition of the low carbon stuff and the environmental
stuff which is a wider definition I would imagine?
Mr Wilkes: I see the point you
make; I have the same figures as you are referring to. When the
government say they are spending £50 billion in the period
2008 to 2011 they include transmission and electricity infrastructure
which was £7.6 billion of that total; public transport was
another £23.2 billion of that total.
Q69 Colin Challen: This is not new
money, is it?
Mr Wilkes: There was some new
money added in the pre-budget report.
Q70 Colin Challen: Not £50 billion.
Mr Wilkes: No, absolutely not.
We are here to say that the government should be doing far more
in this exciting area, exciting economically as well as urgent
in terms of environmental and climate protection. We published
what we called a Green Jobs Growth Strategy back in January
which I will let the Committee have. In that was our breakdown
of the broadly defined environmental industry. We make it clear
that there are three key sectors, the traditional environmental
technology sectors: waste technology, water treatment technologies,
air pollution control technologies. Certainly 15 years ago when
we launched EIC the renewables energy industry was quite small—now
it has been growing rapidly of course—and it is that sector
which we calculate at about 50% of the overall industry picture.
Then there is also the one which is amorphously defined as the
carbon management industry. When you look at the Committee on
Climate Change's Report on which technologies are going to help
and when you look at the UK trade and investment analysis of which
markets are going to grow rapidly and where the UK has comparative
advantage, you will see that the energy management in the sustainable
buildings area which we defined as the carbon management industry,
is about 15% of the total and growing. That is a roundabout way
of answering your question which is that the government's £50
billion included a lot of what I am sure many of us would not
define as environment industries.
Q71 Colin Challen: You mentioned
the HSBC Green Rebound report which, as you correctly say,
suggested that South Korea is investing 69% of its overall stimulus
package into green technologies. We are at 7%. Have you had chance
to analyse why this difference exists or what the Koreans are
actually doing? Perhaps they are also bending definitions; we
do not know for sure, do we? Have you had a chance to do that?
Mr Wilkes: Not in the detail that
would probably satisfy you but I would say that that package includes
money for afforestation; quite a big chunk for that. There is
also a big chunk for water management or water pollution control
which probably is not that surprising bearing in mind that they
probably do not have the advance regulatory structure that Europe
and Britain have put in place over the last 20 years. Just as
an aside, I have obviously been involved in this industry for
close on 20 years now and every year I go up to our industry's
trade show which was called the Environmental Technology Show.
Way back in the early 1990s the Koreans were coming in on inward
trade missions via their embassy and via what is now called UK
Trade & Investment. It was very, very clear that they had
identified this as a growth sector in terms of future prosperity,
creating jobs and exports. They were coming over here to glean
knowledge and, dare I say, with no disrespect to Korea, picking
up ideas and possible technologies for exploitation.
Q72 Colin Challen: Since we are in
the European Union that does impact on our environmental policies.
Could you suggest how capital from the European Investment Bank
could be better used in the UK?
Mr Stevens: As I understand it
the European Investment Bank has two mechanisms of funding. One
is through direct funding which is what I mentioned before, the
projects are above 25 million euros which is a rather large size
of project. Unfortunately for the proportion of our membership
involved in the low carbon industry—energy management, carbon
management—that level of funding simply will not register.
Whether that funding needs to be through the European Investment
Bank or another means, it does need to be directed at innovation
within SMEs and not just these huge, large scale projects. Also,
as I understand the second mechanism for funding through the EIB
is intermediated loans through the banks. I am not an economist
or expert on how bank funding works, but there is a question mark
in the current climate against exactly how that is enforced and
how you make sure that the proportion of the four billion euros
that will be delivered through the intermediated loans will actually
be appropriately delivered through the banks.
Mr Wilkes: Just to add something,
Mr Challen, in light of Danny's earlier comments there is a focus
there on these being massive projects—big wind energy projects
and maybe support for nuclear and carbon capture and storage—and
I think one of our key messages would be that in tackling climate
change let us grab the low hanging fruit very, very quickly. You
will be aware of the McKinsey cost curve and various other studies,
all of which show that if you have £10 to spend you can get
a better return by focussing on energy efficiency in the short
term rather than very expensive in terms of cost per ton of carbon
abatement on some of these other technologies.
Chairman: We have mentioned the question
of market and demand so we now turn to the market for low carbon
technologies.
Q73 Dr Turner: For the purposes of
my questions I define environmental industry as low carbon, principally
electrical generation. The UK's industry in that regard looks
a little sad compared with other international competitors, noticeably
Denmark and Germany. Their industries, particularly the German's
in solar and wind, are worth many times more than the value of
our own industries. Can you tell us reasonably briefly—I
know it is a complex answer—why you think this is?
Mr Wilkes: I ought to have made
it very clear when I was defining the environmental industry that
we represent 300 companies who provide environmental technologies
and carbon management solutions. I think you will be hearing from
the trade associations who represent renewables sectors. I have
a fascinating document which I would encourage the Committee to
have a look at, it is from the German Embassy, a study commissioned
on investments for a climate friendly-Germany. They refer to a
German programme called the Meseberg Programme where the government
intervene and subsidise. I am mentioning this because it links
back to the earlier questions about the size of the green stimulus
in our budget. It predicted that this government programme was
going to create 17 billion euros of additional demand from German
climate change technologies and that would increase their GDP
by 20 billion euros a year and create 200,000 jobs. As an outsider,
so to speak, looking at the renewable sector, Germany has done
very well.
Mr Stevens: I would just pick
up on the point defining the low carbon industry as just electrical
or energy generation, I think that would be a mistake; it has
to be a lot broader than that. Energy supply and decarbonising
energy supply through renewable technologies is obviously important
and we would fully support that but do not have it as part of
our membership base. The energy efficiency, carbon management,
energy management has to be the first priority with all climate
change and energy policies. It is the cheapest way of meeting
climate change targets, it is the most cost effective way of doing
so, it offers the most immediate returns (whether in building,
industry or transport). Energy generation should be part of the
low carbon industries but the first priority has to be the energy
efficiency and the carbon management industry. To answer very
briefly the question about why Germany has a lead, I think it
is because they were able to acknowledge the potential value of
the industry in years to come and they got there first. First
mover advantage rules in all cases in environmental policy. With
the natural resources that the UK would have had to build up a
domestic renewable energy industry, it is a shame that we have
missed that opportunity. The reason why Germany now leads that
market is simply because they got there first.
Mr Wilkes: I missed a very important
quote when I was quoting from the German report. Of course what
the British Treasury will say is, "Oh well, we can't afford
it in these current times". Other than talking about additional
demand for their technologies in export markets, 200,000 jobs,
nearly two billion euros in subsidies needed to implement the
Meseberg Programme will result in a national debt lower by 180
billion euros.
Q74 Dr Turner: Let me suggest to
you that a reasonable accurate re-phrasing of your answer would
be that the German example is a good case of government intervention
to guarantee a market for the new technologies through feed-in
tariff regimes et cetera, et cetera or the provisions of the German
renewable energy act. Do you think this is an example which might
be followed by other countries? Do you think it would benefit
us if we took similar measures?
Mr Wilkes: I think from day one
we have argued in line with commentators like yourself, the OECD
and experts all round the world, that first mover advantage creates
a lead in these growing markets and the reason the government
had to intervene of course is because the environment is not costed
into our market mechanism and therefore we have to put the market
right by government intervention and that is either through regulation,
subsidies or taxes. I totally agree with you; thank you for rephrasing
our answer.
Q75 Dr Turner: Have you seen any
sign of the UK's government doing anything in that regard to any
effect in order to stimulate the market?
Mr Stevens: I would always pick
the example of the zero carbon homes and the zero carbon non-domestic
buildings. Depending on how you define zero carbon there is obviously
an element in terms of the energy generation, but that is a good
example of government policy, providing a long term policy framework
for meeting a climate change target and as far as I am aware no
other country in the world has committed to zero carbon homes
in the timescale that the UK has done so and equally non-domestic
buildings by 2019. They are significant challenges but they are
welcome examples of government policy making before our international
competitors. If we are successful in scaling up the house building
industry to actually achieve that target then the business opportunities
domestically and also for export are absolutely huge. That was
an example of big business opportunity for the UK; highlighted
by David Miliband back in March when he was launching the UK Trade
& Investment's low carbon marketing strategy. The devil is
obviously in the detail—depending on how you define zero
carbon and the level of energy efficiency standards it drives.
I think there are still question marks around that and concerns
that it could be watered down, but broadly speaking as a high
level example I would use buildings.
Mr Wilkes: In terms of an overall
government approach I think our answer would probably be a bit
premature because of course this month the government is due to
publish its Low Carbon Industrial Strategy. I hope that it will
be a lot more comprehensive and more vigorous in terms of its
level of government commitment and action than previous initiatives.
We have been pushing for an industrial strategy to promote this
industry for 15 years. The first initiative that the Labour government
actually took on coming into office was to establish something
called the Innovation and Growth Team which was an array of industry
experts and senior businessmen. They made a number of recommendations,
many of which were not really followed through. Then the Commission
on Environmental Markets and Economic Performance was established.
Again we have not seen a lot of actual follow-through. However,
on some other key areas we have focussed today on government's
role in terms of regulation and taxation but then there is public
procurement. It is 40% GDP; we have been pushing for 15 years
for the Government procurement office—and it keeps changing
its name of course—to do far more to create an initial push
to some of the technologies in this area. Very, very little has
happened, if anything; I think they have targeted light bulbs
or something. Then on skills training, there is supposed to be
a special environmental industries skills council; I have not
heard what has happened, I do not believe much progress has been
made in that area. As to exports, if you look at UK Trade and
Investment its focus of resources in this area has been pretty
minimal; their budgets have been cut in recent years. It is not
just about government's role in terms of regulation, there are
all these support mechanisms to help British industry seize this
opportunity.
Q76 Dr Turner: So your report is
that they could do far better.
Mr Wilkes: I am afraid so. Now
is the time to grab this opportunity because as we analyse what
other governments are doing with their stimulus packages, other
governments have woken up to this opportunity, even Korea.
Q77 Sir Robert Smith: I was going
to comment on Mr Stevens' remark that energy efficiency is the
low hanging fruit; energy efficiency does seem the obvious first
target and the right strategy. We have all been espousing that
for a long time, but if it is a low hanging fruit it is very firmly
attached to the tree and we still have a lot of policy instruments
to actually try to get it off the tree and then make full use
of it.
Mr Stevens: I think that is true
but there are positive examples, as I say, of government policy
that is trying to drive improvements in energy efficiency: I come
back to the zero carbon homes and non-domestic buildings example.
The most important thing with that is that it does actually drive
the highest standards of energy efficiency. To draw an example
from Germany again, their current standards in terms of energy
efficiency are actually significantly higher than how we would
define zero carbon in the UK. The Carbon Reduction Commitment
is another positive example of government policy from a high level
perspective of trying to drive energy efficiency in non-energy
intensive organisations and trying to make energy and carbon management
a boardroom issue. To date it is not because those organisations
that will come under the CRC their energy bills are something
like 1% of their total overheads. There are examples, but the
most important thing is that they do actually drive a high level
of ambition.
Q78 Sir Robert Smith: One other thing
that we picked up from the Danish Economic Advisory Council was
that when you start to have these different instruments they can
interact with each other and you can get yourself in a financial
muddle. They were pointing out that Europe has gone down the road
of emission trading for electricity generation, therefore if any
national government now steps in with a stimulus for a low carbon
electricity generation, that subsidy will leak across the whole
of the European Union because in producing the lower carbon generation
in your own country through a national stimulus you then alter
the market in emission trading certificates which is fluid market
across the whole of the European Union. We do have to be careful
about where we mix and match different stimuluses.
Mr Stevens: Yes, I would agree,
but again coming back to the point which I think applies to everything
we are talking about is making sure that policy is ambitious enough
to drive the changes that we need in all sectors of the economy.
The emissions trading scheme sadly to date has not been ambitious
enough to drive the emissions reductions that are required and
to stimulate a high enough carbon price that encourages investment
and makes investment in low carbon alternatives cost effective.
It remains to be seen whether that happens in phase three which
will start in 2013, but again it is coming back to that main point,
it is just driving the highest possible level of ambition.
Q79 Judy Mallaber: You said a while
ago that now is the time to really get going on this but we are
also obviously, as you know, in the midst of recession. I know
you have done a survey of your companies; can you tell us what
the effect of the recession is and also which sectors have experienced
the biggest impact?
Mr Wilkes: The EIC, other than
being a lobby group for the industry, created something called
The EIC Environmental Investment Network which is designed to
bring investors together with companies looking for funding. The
Environmental Investment Network rang up several hundred companies
and got answers from 151 companies and out of them 57% said that
they were struggling to raise finance in the recession. Not surprisingly,
here is a headline from the New York Times in April: "Clean
Tech's future dims as financing drops off", and then a report
from Ernst and Young showing that Clean Tech's firm raised just
$277 million, down 63% compared to 2008. So raising finance at
this point is a significant challenge. I think that then throws
back, dare I say it, a bit of onus on government. If you ask investors
what they want, they want certainty about the regulatory regime,
because the regulatory regime drives demand. If you then look
at these figures and see a decline, you can then ask questions
about what government can do and they could get the emissions
trading scheme—going back to the earlier question—working
properly with a high and effective price for carbon. The British
Government could follow the example of the Irish Government which
I believe, when it bailed out the banks, insisted that the now
publicly subsidised banks in Ireland support the environmental
sector.
Q80 Judy Mallaber: Was your analysis
then about whether they were having difficulty in getting finance
or about what was happening to their production and sales?
Mr Wilkes: It was both.
Q81 Judy Mallaber: Did you analyse
it by sector? Are there some sectors within the industry that
are doing better than others? Are there some that are being more
favoured by the banks than others?
Mr Wilkes: I do not have those
figures to hand but I will ask the people who did the actual details
and send them to you.
Q82 Judy Mallaber: Thank you, that
would be helpful. Des asked the question earlier about our exports
in comparison with environmental industries exports from other
countries like Germany. Have you done an analysis of the value
of environmental industry imports, what is coming into this country?
Mr Wilkes: No.
Q83 Judy Mallaber: You do not know if
that is available.
Mr Wilkes: We operate on a budget
of £400,000 a year and we are not in a position to do what
government departments should be doing. We have asked questions
of government departments about, for instance, have they done
an analysis of the job creation potential in these sectors. I
am not aware that any part of the British Government has done
that analysis; it is a very pertinent question.
Q84 Judy Mallaber: It is not something
that your members have come to you and asked why we are not able
to produce stuff in this country and it is all coming in from
overseas? Has that not been an issue that they have talked to
you about?
Mr Wilkes: It is an underlying
issue all the time which is why we argue for the British Government
to put in place the regulatory framework and support for not so
much R&D which is largely there but the next stage, the demonstration,
taking to market stage of commercialisation and then public procurement
support. That is why we go back to the fact that it would be helpful
to have an overall package and we hope the low carbon industrial
strategy will embrace all these different ways of supporting the
industry. I would encourage you to ask government if they have
got those figures on imports because we do import a lot.
Q85 Chairman: Certainly if you are
able subsequently to provide the Committee with any further thoughts
on that we would be grateful.
Mr Wilkes: We will have a look.
Q86 John Robertson: I know you have
not done the comparison but what about cost effectiveness? Is
it cheaper to import than to buy the stuff here?
Mr Wilkes: That is another good
question. It reminds me slightly of how, dare I say, officials
way back in 1995 in the Department of Trade of Industry—which
I thought was designed to help British industry grow—would
say, "We do not actually need a domestic environmental industry;
we can probably buy all our technologies from abroad". To
go back to our central argument that we are in a £3 trillion
market place today possibly on the projections of the recent government
study reaching £4.5 trillion by 2015; that is a lot of jobs,
exports and a lot profits.
Q87 John Robertson: I appreciate
that but you still have to be competitive. If you have a £3
trillion business then you want to get your part of it, but to
get it you have to be profitable and you also have to be cost
effective to people who want to buy your goods.
Mr Stevens: The most important
thing is to make a good domestic industry profitable and competitive,
so that the UK has the export opportunities to grab a share in
that £3 trillion market which will grow every single year.
If the science of climate change is anything to go by and hopefully
what will be an ambitious agreement at Copenhagen in December
of this year, the future of the global economy has to be low carbon.
The key challenge for the UK is what size of that market it wants
to take from its own domestic industry and the challenge therefore
is making the domestic industry competitive. The main objective
is to tackle climate change but the key challenge is making sure
we do so using UK technologies which will create UK jobs.
Q88 John Robertson: The point I am
trying to make is that there are constituents who want to buy
goods so they can save energy and they are not going to worry
about where it is made; they are going to buy what they can afford.
Mr Wilkes: I think in a way what
you are doing is setting a challenge to the companies in this
sector to be cost effective and internationally competitive. I
would refer you to this UK Trade and Investment report from October
of last year which actually lists by sector where the UK has relative
advantage and energy management, as I mentioned earlier, is a
huge sector, the fourth largest in the British market place at
the moment at 26 billion. That is one of the ones where the UK
has relative advantage.
Chairman: We are going to have to move
on now. We have mentioned low carbon homes and energy efficiency
a little earlier. Colin, would you like to ask further questions
on that?
Q89 Colin Challen: Do you agree with
the definition of a zero carbon home that the government is using?
Mr Stevens: They have not actually
decided on it yet. They consulted earlier this year and the responses
to the consultation and final decision on exactly how you define
zero carbon has not yet been decided. The proposal was that the
energy efficiency requirements in Part L of the Building Regulations
would be equivalent to Level 4 of the Code for Sustainable Homes.
There would then be an additional bit added on; up to 70% of the
net carbon emissions of the home would be achieved by "carbon
compliance" solutions which would be, for example, on-site
generation, micro-generation technologies etc. Then the further
30% would be the various proposals put forward. They have basically
listed a whole range of allowable solutions of off site generation
which does not necessarily have to connect to the home directly.
Q90 Colin Challen: Have you detected
any signs that the building industry, despite the recession, is
already shaping up to meet this as yet undefined target?
Mr Stevens: When I say that it
is undefined, it is important to remember that that is the target
for 2016; we will actually get to 2016 via a trajectory through
improvements in Part L of the Building Regulations. The first
change will come in next year which will be equivalent to Code
Level 3 of the Code of Sustainable Homes. In 2013 it will go up
to the equivalent of Code Level 4 and then will stay at that point
in terms of energy efficiency and the actual zero carbon part
between 2013 and 2016 will be achieved through the carbon compliance
and allowable solutions. For obvious reasons the building industry
is facing problems at the moment and it is a significant challenge
for the industry to actually deliver on those improvements. We
recognise that it is a significant challenge but our key message
is making sure that the target and these incremental changes in
2010 and 2013 are not watered down in any way. It is a challenge
but the business opportunities that it can create both in terms
of a domestic industry and for export far outweigh those challenges.
A point we made in our written evidence, the importance of government
intervention in trying to stimulate the industry, particularly
in the current times, I think we have called for all additional
social housing to achieve the zero carbon standards in advance
of what is required through regulation for the commercial side
of the industry in order to stimulate that demand and start building
up a skills base that is necessary to deliver on target.
Q91 Colin Challen: The new build
from 2016 will be a tiny fraction of our existing housing stock
which will be around for decades to come. Is the government really
doing what it should be doing to retrofit?
Mr Stevens: No, not yet. In terms
of the domestic and commercial building stock, existing buildings
are certainly the biggest challenge. In terms of policy and also
the size of the emissions reductions that are required, there
are some examples of government policy within that space. There
is the Carbon Emission Reduction Target which is an obligation
on energy suppliers to meet a carbon emission reduction target
within their energy supply—but it is not ambitious enough.
It is very much the low hanging fruit. Whether it is through low
energy light bulbs or whatever it may be, that will change through
legislation to be expanded out to include, for example, smart
metering to be included as part of the energy suppliers' obligation.
They can install smart meters as a way of actually meeting that
target which I guess is questionable because you can install a
smart meter but it does not actually require any emission reductions.
The Carbon Emission Reduction Targets would then evolve into the
community energy saving programme and the Great British Refurb
that we have heard a lot about, making our existing homes zero
carbon by 2050. Those are positive examples.
Q92 Colin Challen: How positive is
positive? I was reading only the other day that despite the fact
that this new target for energy suppliers something like 200 million
CFLs have been handed out for nothing but nobody, it seems, has
actually asked the question: who is using them? Are they being
used at all or are they just being put on a shelf? That is something
that should be looked at very closely because it suggests that
the electricity companies are saying, Here are some low hanging
fruits; we are not going to bother following it up but it does
get us off the hook for more difficult challenges because they
can they play in the saving for all of those light bulbs as if
it was actually being saved.
Mr Stevens: Yes, I absolutely
agree.
Chairman: I think we will take that as
a statement rather than a question. Julie Kirkbride?
Q93 Miss Kirkbride: Can I ask a bit
more what we mean by a zero carbon home? Looking at the brief
we have this thing about PassivHaus standard in Germany but what
does it mean in the UK and in Germany? What would it be?
Mr Stevens: PassivHaus in Germany
is an energy efficiency standard for new homes. It is equivalent
to Level 4.5 of the Code for Sustainable Homes. In terms of our
target for 2016 we will get the equivalent to Code Level 4. The
Germans, in terms of energy efficiency in new homes, are actually
further advanced than the UK in terms of regulatory targets. I
think approximately 8000 homes have currently been built to the
PassivHaus standard to date.
Q94 Miss Kirkbride: Are you talking
about just the construction or are you talking about the maintenance
of them afterwards? Was it their construction that was carbon
free or the running of them that is carbon free?
Mr Stevens: The use of the building.
The Building Regulations as I understand it, will include, for
example, the net carbon emissions from the home and that will
cover the use of appliances and what have you within the home.
How you actually regulate the use of the home after it is built
in 2016 is a significant challenge but in the domestic side of
the stock that is not perhaps so much of a challenge because we
move into new homes and the actual use of the building does not
really change significantly. The big challenge in terms of that
will come with the 2019 ambition for non-domestic buildings. That
is a huge challenge in terms of defining zero carbon because of
the huge range of different types of non-commercial buildings
that there are but also the use of the building, once it is built
to a particular standard, might change significantly. It might
be a non-energy intensive use for 10 years and then somebody might
buy it and change its use and therefore increase its emissions.
Q95 Miss Kirkbride: We have been
talking about low hanging fruit for most of the morning, but what
is the big gain if we were to talk about converting existing properties
as well with better carbon rating stuff inside the house? What
kind of energy and carbon cuts can we make from an adaptation
to our housing stock? Can you give us a gradation as to what we
can get at this level or that level or what we can get at the
higher level if we were more serious about looking at our domestic
energy consumption?
Mr Stevens: In existing homes?
Q96 Miss Kirkbride: Yes.
Mr Stevens: I do not have any
exact figures to say that if you installed a low energy light
bulb in every room in the house you would achieve this and if
you attached a wind turbine to it you would achieve that. The
challenge really is finding a way of incentivising householders
to actually make those improvements. As I say, I cannot comment
on exactly what you would achieve and at what level by installing
whatever technology it may be. The key is that the government
has to find a way of incentivising householders to actually make
those energy efficiency improvements. That is a big challenge
and I do not know whether you do it through regulation or financially
or through tax incentives. They have to find a way of doing it.
Chairman: Can we now move to thinking
about the specific low carbon technologies that will be involved?
DECC's memorandum to this Committee focussed on five particular
technologies: carbon capture and storage, offshore wind generation,
marine energy, nuclear energy; and low carbon vehicles. We have
a few questions about that particular area. Mike Weir?
Q97 Mr Weir: The first question is,
do you think they are the right technologies for the government
to be focussing on?
Mr Stevens: Yes and no. No because
it excludes a lot of what we have been talking about in terms
of the carbon and energy management industry and the building
technologies as well. Buildings are a huge proportion of our emissions
and one of the sub-sectors that the Government acknowledge has
good growth potential but it is not picked out as one of the key
technologies that will actually be supported through the Low
Carbon Industrial Strategy which are the technologies highlighted
in the Government's Investing in a Low Carbon Britain report
which picks out the areas that it sees as growth technologies,
growth markets that the low carbon industrial strategy due this
month will support of domestic industry. Most importantly is the
carbon energy management industry. It is a glaring omission that
the Government has not identified that sector as a big growth
area or as an industry that does not require the same level of
support as the other areas that you have identified.
Mr Wilkes: If you start looking
at all these studies—which all seem to point in the same
direction—if you invest in fuel efficient vehicles, fuel
efficient homes, general energy efficiency of appliances you get
much more carbon saving for your pound invested, going back to
your cost effectiveness point, than you do if you are investing
in bigger projects.
Q98 Mr Weir: One would presume that
if the industry truly wants to go green it is going to invest
in much of that technology on its own without government intervention.
Do you think that will happen? Will they take more action in that
sphere?
Mr Wilkes: I have been involved
in environmental issues for 25 years and so many times I have
heard the same argument. Industry was going to go green after
the Euro elections of 1988 and the 1990 Environment White Paper
and there are people of a certain mindset in government (it used
to be the DTI but now seems to reside in the Treasury) who think
that we just need to send a signal to encourage people. British
industry and industry around the world will not invest in environmental
protection unless government require them to do because it is
not in their shareholders' interests; it is a market failure.
They can offload the costs of pollution—whether that is
water pollution or climate pollution—onto us, the society,
free unless government intervenes whether with a regulatory standard
or tax or whatever. I do not have any faith and I remember looking
at the figures of one of our country's leading water companies
which is incredibly environmentally sound and they marketed themselves
for many years as environmental leaders. However, when you looked
at how much they spent—it was probably about a billion pounds
a year of our money—on environmental protection, 99.9% of
that was regulated expenditure. The voluntary bit was minor. I
have never been a believer that voluntary initiatives in this
area will overcome the imperative of satisfying the shareholder
so governments have to correct the market failure.
Q99 Mr Weir: We are not going to
get command economy in the next week. Can we look at some of the
things the government is doing, carbon capture and storage in
particular? What potential do you think it has to contribute to
a low carbon economy?
Mr Wilkes: Can I just pick up
on your point about command economy? America led the way in the
environmental industry in the 1980s and 1990s and created three
million jobs in air pollution control and water pollution control
through putting in place regulations to control pollution. Was
America a command economy? No. Free market economies know that
sometimes they have to regulate—this building has seen enough
bankers recently to understand that regulation is an important
role of government. We do not represent companies in CCS but what
I do know is that it is incredibly expensive. All the cost curves
point us in the direction of putting far more money into energy
efficiency.
Q100 Mr Weir: Do you accept the government's
view that new nuclear power stations could make a significant
contribution to tackling climate change?
Mr Wilkes: This is a personal
opinion rather than one from our membership. I cannot see how
we can put the responsibility on generation after generation after
generation to look after our waste, particularly bearing in mind
the cost of that. We have seen the rising costs that are associated,
about £90 billion now for cleaning up our current nuclear
power stations. I think it is immoral to pass on that responsibility,
until we know we have a safe way of disposing nuclear waste.
Q101 Mr Weir: I would not disagree
with that but you did not really answer the question. We were
talking about reducing carbon emissions. Leaving aside the question
of waste, do you feel there is a sufficiently reduced carbon emission
from the power stations?
Mr Wilkes: It clearly would although
there are questions about the carbon input and you need to speak
to experts like Dr David Lowry in terms of carbon input, in terms
of constructing, the mining and the processing of the uranium,
and is there not a big question about whether the world has enough
uranium. I am not expert; I am voicing personal opinions.
Q102 Mr Weir: What about low carbon
vehicles then. There is obviously a big push onto electric vehicles.
What sort of infrastructure do we need for these? What would we
need to do to our energy supplies to make truly low carbon?
Mr Wilkes: We are talking about
three sorts of technologies here. There are biofuels, which are
the current focus; and there is increasing attention being paid
to electric cars and fuel cells. We never believed in picking
technologies I should say. I think we should put in place the
framework and then allow companies to come forward with what is
most cost effective and satisfies the consumers. Hydrogen is going
to require an awful lot of electricity, as are electric cars.
There is the interesting new algae based biofuel technologies
that have been researched a lot in America and China, sadly not
here; I think there is one small project in this country.
Q103 John Robertson: I should declare
an interest in that I am chair of the Nuclear Energy Group in
Parliament so you will not be surprised if I totally disagree
with what you said about nuclear. From what you have been saying
it appears to be energy supply versus energy efficiency here.
Or is that just because that is who you represent? You are giving
me the impression that you feel that that is where the government
should be spending most of its finances and that supply can take
care of itself.
Mr Stevens: It is not one or the
other, it is both. It has to be both. Decarbonising the power
sector and decarbonising our energy supply has to go hand in hand
with actually reducing the energy that we use in the first instance.
I think the first priority has to be energy efficiency because
it is the cheapest and most cost effective way of meeting various
targets. In all of these examples that we have just talked about
we need a mix of different policy mechanisms and also a mix of
different technologies. Going back to the low carbon vehicles,
the short answer to the question about electric vehicles is that
there needs to be a vast new infrastructure and it is a big challenge
which again needs to be combined with decarbonising the power
sector. Also that, and low carbon vehicles, has to be part of
a mix of different technologies as well. It is no use trying to
pick winners and saying that electric vehicles or hydrogen is
the future. Let us hope we can move towards electric vehicles
by 2050 but the reality is that that is not going to happen within
the next couple of years and certainly the contribution it might
make to our 2020 targets will increase but it is likely to be
minimal. That again needs to be supported but with a mix of biofuels.
That is where the immediate opportunity lies. Everything needs
to be a kind of technology mix. Going back to the carbon capture
and storage, just to illustrate the points that we are making
and our disappointment that carbon and energy management are not
actually supported as part of the Low Carbon Industrial Strategy,
BERR themselves actually published figures alongside the draft
provision document for the Low Carbon Industrial Strategy
that suggested that carbon capture and storage was actually 17th
out of 23 sub-sectors within the environmental industry for its
growth potential, several places behind energy management and
building technologies was third.
Mr Wilkes: Wind and alternative
fuels were first and second. We certainly do not want to paint
a picture that we can live without energy and therefore low carbon
energy supplies are vital.
Q104 John Robertson: Would you not
accept that for things like carbon capture and storage to be financially
worthwhile and viable is quite a few years down the line yet and
that really what you are telling us today is that we really have
to start yesterday and today is an important starting point. We
have technologies out there that we want to invest in.
Mr Wilkes: That is a good summary.
Q105 Chairman: Thank you very much
Adrian Wilkes and Danny Stevens for you evidence this morning.
We would be very grateful if the documents to which you have referred
could be referred to the Committee.
Mr Wilkes: Of course. We will
come back to on the question of our survey.
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