Memorandum submitted by Tesco
SUMMARY
1. Tesco is committed to taking a leadership
role on tackling climate change, in particular by innovating and
investing in sustainable technologies and buildings, and by using
our relationship with customers to empower them to take part in
a revolution in green consumption. As part of our climate change
strategy, we are making significant investments in developing
low-carbon stores and distribution centres. This submission sets
out our views on what more is needed to support the revolution
essential to creating a low carbon economy.
2. Low carbon technologies could provide
a huge opportunity for UK plc, creating jobs and helping us to
show leadership globally. We know that the potential is there,
but a number of barriers need urgent attention by Government if
this potential is to be fulfilled. As well as addressing barriers,
there are also some important incentives that should urgently
be brought forward to reinforce the existing set of policies.
3. In particular, we propose the following:
(i) Greening of taxation—particularly by
creating business rate incentives for the most energy-efficient
buildings.
(ii) Support for consumers in making lower-carbon
choices (eg through VAT reductions on energy-efficient electrical/electronic
goods).
(iii) Effective implementation of current planning
reform, plus further simplification of the planning system.
(iv) Amendment of CRC policy to provide recognition
for the carbon benefits of on-site renewable energy generation.
(v) Resolution of specific practical barriers
to deployment of biofuels, energy from waste and ground source
heat pumps.
4. By implementing these few carefully-targeted
measures, Government could release businesses and individuals
to make the fundamental changes that are needed to drive down
emissions while boosting the economy.
INTRODUCTION
5. A successful negotiation at Copenhagen
will be a key part of achieving a low carbon global economy. Clear
targets agreed for all countries will give Governments confidence
to put in place ambitious policies without the fear of impacting
on competitiveness. This is broadly true for the UK as for others,
except that the UK policy framework is strengthened both by the
EU Climate and Energy package and by the statutory carbon budgets
under the Climate Change Act 2008. The combination of these statutory
targets with the economic benefits of investing in low carbon
technologies should mean that Government and the business community
have confidence in the short and long-term economic benefits of
making those investments now. The UK has also traditionally been
a hub of innovation and technological research, which means that
we have the practical resources to support deployment.
6. The potential exists, therefore, for
the UK to become a leader in low carbon technology. However, this
potential is not yet being realised, and the deployment of energy
efficiency and renewable technologies in the UK is making slow
progress. This is not due to lack of enthusiasm or interest among
businesses, many of whom now understand the need to drive down
emissions and the business benefits of doing so—the picture
is more complex.
7. Tesco has challenging targets for emissions
reductions, from a 2006 baseline:
— Reduce CO2 emissions
from existing stores and distribution centres by at least 50%
by 2020.
— Reduce CO2 emissions
from new stores by 50% by 2020.
— Reduce by 50% the amount of CO2 used
in our distribution network to deliver a case of goods by 2012.
8. We are making good progress towards achieving
these: for instance, in 2008 our UK energy use per square
foot was just half of its 2000 levels. To achieve our goals
we have explored a range of different practical and technological
approaches, and this submission builds on the experience we have
gained so far.
9. We have found that some existing policies
work. In particular, the Renewables Obligation is the most effective
incentive in the existing policy mix, and in many cases its existence
tips the balance of whether an individual project is economically
viable. However, the fact that the UK's climate and energy policy
approach has developed over time means that the current patchwork
of measures is often confusing for those on the receiving end,
in terms of what is required and where the most significant opportunities
can be found.
10. The ideal solution would be a serious
rethink of climate and energy policy so that it is streamlined,
understandable and fair, and reflects up-to-date priorities and
scientific understanding. Having said that, we recognise the practical
implications of root-and-branch reform, so this submission instead
makes some observations about the existing system and proposes
ways in which it might be improved. The exception to this is on
planning, where we have proposed a major simplification of the
existing situation.
11. A helpful point of reference is our
environmental flagship store at Cheetham Hill in Manchester, which
opened in January 2009 and has 70% lower emissions than existing
stores of the same size. Many of the materials we used in building
that store were manufactured in the UK, including the majority
of the fixtures and fittings, 50% of the refrigeration cases,
terrazzo flooring, a natural ventilation system, and wind turbine
parts.
12. Our aim is to replicate the Cheetham
Hill principles in other new stores, as well as retrofitting improvements
to existing sites. This helps both to reduce emissions and to
create UK jobs through local sourcing. In practice, with every
site and planning application we come across barriers which mean
that often—for reasons outside our control—we are
unable to be as ambitious as we would like. If this experience
is reproduced across the economy, the implication is that there
is a huge amount of potential waiting to be released but currently
being held back.
POLICY CONFLICTS
AND PRACTICAL
BARRIERS
13. This section sets out a number of specific
barriers we have come across in implementing low carbon solutions,
and proposes ways in which these barriers could be overcome.
Planning
14. At present, the planning system is not
geared to tackling climate change. This is partly because the
system operates too slowly. But, more importantly, the planning
system establishes many competing priorities, and those making
decisions often fail to prioritise climate change (eg noise as
a reason for turning down a wind turbine).
15. Crucially, the system fails to recognise
that climate change is unlike other aspects of environmental protection.
By and large, environmental protection has historically been achieved
by restricting development. However, the level of emissions reductions
required to tackle climate change can only be achieved by permitting
low carbon development, rather than by operating conservationist
principles. Rather than simply following the principle that new
development should "be planned to limit carbon dioxide emissions"
(Planning Policy Statement: Planning and Climate Change. Supplement
to Planning Policy Statement 1), planning authorities should be
incentivised and empowered to approve low-carbon development.
Climate change considerations should not only "be integrated
into all spatial planning concerns"; it should be primary
to them.
16. We propose that the planning framework
should be simplified to focus on a few key principles, replacing
hundreds of pages of overlapping (and often competing) policy
guidance:
(i) National Parks, SSSIs and other special areas
should be protected. These areas should be strictly defined, and
subject to a high level of protection.
(ii) Outside these areas there should be a presumption
in favour of development for proposals which contribute to achieving
climate change objectives, including renewable energy generation,
low carbon businesses and zero carbon homes. This presumption
could be adjusted to reflect a small number of other key policy
objectives such as housing and reducing regional and social disparity
to enhance productivity.
(iii) Planning decisions should be taken at the
lowest appropriate level of government, avoiding the delays, distortions
and disempowerment that flow from excessive referrals upwards.
This would mean far fewer cases being dealt with at inappropriate
levels of government and should deliver greater speed and transparency.
(iv) Planning authorities should be incentivised
for approving proposals which deliver policy objectives, eg allowing
local authorities to keep some of the increase in business rates
generated by low-carbon developments.
(v) Businesses and households should be incentivised
to come forward with proposals that deliver carbon reductions,
eg through tax incentives or through the Carbon Reduction Commitment.
(vi) The planning system should be motivated
by evidence, including developing evidence on the shape of a low-carbon
economy, eg incentivising shops closer to residential areas (not
just in town centres) if the emerging evidence suggests this is
more carbon-efficient.
Grid connections
17. At present, several of our wind and
biomass projects are stalled until 2018 because of the need
for grid upgrades. There are two main problems: first, with slowness
in establishing large-scale connections (National Grid); and secondly,
with local distribution companies, who are unable to cope with
local balancing of embedded generation and levy unreasonable charges
to allow on-site generation. We are aware that work is under way
to tackle these problems, but it is important that this happens
very quickly, otherwise failures to connect will undermine good
progress made in developing the technologies themselves.
18. We would also like to see a consistent
process among Distribution Network Operators across different
regions, as well as a simple appeals process for dealing with
DNOs who attempt to ask us to pay for their infrastructure upgrades.
On-site renewables, Carbon Reduction Commitment
and zero carbon buildings
19. Companies may claim Renewable Obligation
Certificates (ROCs) for renewable energy generated on site, and
this is a very effective incentive for installing renewables.
However, under current proposals, the new Carbon Reduction Commitment
(CRC) will require that companies claiming ROCs for on-site generation
have to account for those units of electricity at grid average
levels, ie they cannot claim any carbon reduction even though
the energy has come from a low carbon source. The effect is that
the CRC provides no incentive for end-users to invest in their
own generation as a way of contributing to emissions reductions.
We understand that the CRC is specifically designed as an energy
efficiency measure, but this fact in itself emphasises the need
for the Government to consider how its business-facing policies
work together.
20. The disconnect between CRC and ROC policies
will be compounded if wider mandatory carbon reporting is introduced
which is consistent with the approach taken under CRC. One way
to resolve this would be that CRC reporting policy could use REGOs
(Renewable Energy Guarantees of Origin) and possibly other restrictions
instead of ROCs as the basis for attributing zero carbon rating
to renewable power generated on site. This would avoid double-counting
between CRC reporting and grid emissions factors, while still
allowing businesses to claim carbon benefits.
21. The same rationale applies in relation
to the Government's proposed approach to "zero carbon buildings":
any renewable energy generation developed, irrespective of the
location of that supply, must be allowed to count towards achieving
the zero carbon standard. If necessary, there could be a cut off
date so that only renewables built after a certain year can count
towards the standards to drive additional renewable generation.
Biofuels for distribution
22. At the moment, 50% of the fuel used
in the Tesco distribution fleet is biofuel. We are aware of the
sustainability concerns about biofuel and are keeping our policy
under review. However, from 2010, the phasing out of the existing
tax incentive on biofuels means that their use will become financially
unattractive in any case. As the policy currently stands, it is
unlikely that we will be able to maintain the 50% mix beyond 2010 even
if that does continue to be the most environmentally beneficial
option. We propose that the duty incentive should be retained
for fuels with a 50%+ biofuels mix, as long as those biofuels
meet approved sustainability standards.
Biofuels for energy generation
23. Biofuels not for transport have to meet
stringent standards, and are not allowed to include any element
of fossil fuels. This complexity means that there is no significant
market in biofuels not for transport, and therefore no reliable
supplier, leading to ongoing uncertainty about viability. We are
keen to use these fuels in our CHP plants, but have struggled
to source them.
24. This problem could be solved by making
energy generation rules consistent with the RTFO rules on methanol
transesterified biofuel, ie allowing a minimal component of fossil
fuel in the mix. Alternatively, the Government could intervene
actively to support the development of non-transport biofuels
and the creation of an active market.
Classification of waste as "fuel"
25. At present, mechanically heat-treated
waste cannot be classified as "fuel" on a standard basis:
each application has to be considered individually by OFGEM. This
creates a significant obstruction to creating a programme of energy
from waste plants across a number of sites. To overcome this barrier,
the Government should work with the EU to create a more sophisticated
policy that allows certain kinds of heat-treated waste to be declassified
as waste and reclassified as a renewable fuel, on a clear and
standardised basis.
Sourcing waste to supply anaerobic digestion plants
26. Tesco is keen to explore anaerobic digestion
as an efficient "closed loop" waste to energy system
for the business. However, our individual sites—or even
clusters of sites—generally do not produce enough waste
to supply a plant. An ideal supplement would be municipal waste,
but EU procurement regulations require that a PFI-like process
be undertaken in order to obtain this, and negotiations with local
authorities can take up to five years. A review of procurement
regulations is needed if this is to be overcome.
Ground source heat pumps
27. We have struggled to get abstraction
licences from the Environment Agency; this has made it difficult
to install any ground source heat pumps, and means that a lot
of potential on our sites is lost. We have also suffered from
changes in advice. A specific example is at our store in Shrewsbury,
where in 2007 we installed an open loop geothermal system
exchanging heat with the local water table, on the basis of our
understanding of the rules in place at the time of installation.
However, the geothermal heat load generated by the store was greater
than expected, and so the system is now unable to meet the operating
criteria set by the Environment Agency. As a result, the geothermal
system is not currently operating and we are amending the store
heating/cooling system to run on more traditional lines. This
is obviously a great disappointment: we are left with an expensive
stranded asset and have not made the ambitious emissions reductions
planned at the site. With clearer guidelines at the outset we
could have avoided this outcome.
INCENTIVES
28. In addition to removing practical barriers,
Government should consider introducing additional policies to
incentivise the uptake of low carbon technologies.
Energy efficiency of buildings
29. The incentive of reduced energy bills
is not proving sufficient in itself to drive the level and speed
of action we need to improve the energy efficiency of buildings
in all sectors. In many cases—especially where "easy
wins" have already been achieved—efficiency could be
improved through the uptake of specific low carbon technologies.
30. One way of bridging the gap would be
to offer reduced business rates for those properties that achieve
low emissions, based on an existing measurement system such as
that used for Display Energy Certificates. This would offer a
real incentive for investment: for instance, a 10p tax cut in
the multiplier for achieving a particular energy rating would
finance £100,000 of energy savings at a typical Tesco
superstore and would significantly influence investment decisions.
This could be made cost-neutral, either within the business rates
system (with commensurate penalties for the worse performing buildings),
or more widely within the tax system.
Supporting consumers
31. Individual behaviours and consumption
patterns have a huge impact on the uptake of green technology,
either directly or down the supply chain. Tesco is working hard
to support green consumption decisions, such as by permanently
halving the price of energy efficient lightbulbs. However, there
is only so far that retailers can go without Government support.
For instance, VAT reductions could be offered for the most energy
efficient goods in sectors where price is reasonably elastic and
a range of options available: electrical and electronic household
goods are an obvious opportunity.
32. Consumers also need further incentives
to make low-carbon transport choices. We welcome the Government's
stated ambition to provide greater support for electric cars,
and are keen to see more detail on implementation of that ambition.
The challenge of making electric vehicles work in practice exemplifies
the cooperative approach needed to deliver a low carbon revolution:
Government provides the initial incentive, businesses work in
partnership to facilitate delivery, and consumers are attracted
to the new technology and provide pull-through. We are keen to
be part of this revolution.
May 2009
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