CORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 648-viiHouse of COMMONSMINUTES OF EVIDENCETAKEN BEFOREENERGY AND CLIMATE CHANGE COMMITTEE
LOW-CARBON TECHNOLOGIES IN A GREEN ECONOMY
|
|
1. |
This is a corrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others. |
|
2. |
|
Oral Evidence
Taken before the Energy and Climate Change Committee
on
Members present
Mr David Anderson
John Robertson
Paddy Tipping
Dr Desmond Turner
Mr Mike Weir
Dr Alan Whitehead
In the absence of the Chairman, Paddy Tipping was called to the Chair
________________
Memorandum submitted by Sustainable Development Commission
Examination of Witnesses
Witnesses: Mr Maf Smith, Acting Chief Executive, and Mr Tim Jenkins, Senior Policy Analyst, Economics, Sustainable Development Commission, gave evidence.
Q391 Paddy Tipping: A warm welcome to Maf Smith, who is the Acting Chief Executive of the Sustainable Development Commission, and to Tim Jenkins, an economic analyst. Would you just start us off because the SDC has done quite a lot of work on the green stimulus package. Take us through your proposal and in particular contrast your proposal with what the Government are presently planning to do.
Mr Smith: I will give you some background into the work we have done. We had our Sustainable New Deal report and that report was built on a number of pieces that we analysed, reviewed and provided advice to Government. There was the Green New Deal Group, the Deutsche Bank analysis, HSBC work and the Grantham Institute. There were a lot of discussions around fiscal stimulus and the Green New Deal and we wanted to look at that through the lens of sustainable development at how we could deliver both social gains but also looking at how we stay within environmental limits that support the economy. As a result of that work and also as a result of another report, which we may come back to, called Prosperity without Growth, which was our analysis looking at the wider economy and how the macroeconomic models worked and what we felt there needed to be changed and what is not working within the context of sustainable development, we looked at both the Budget and the Government's last CSR. We looked at what we felt was needed based on how Government had set out its climate change aspirations and other issues. Our recommendations were that above and beyond what was in the Budget and what had already been committed to in the CSR it needed a significant stimulus package that needed to be up to 50 per cent of the wider package on low-carbon forms and we set out a number of priority areas which we can go into in more detail. The reasons for that are clear. If Government is to hit its climate change targets and to hit its wider sustainable development principles it has a lot further to travel and we have a very short time to do it. It is an issue of urgency and scale. We did not feel that the Budget and the issues set out sufficiently tackled that so we highlighted a number of areas where we need investment. The key thing to note is this is for investment through a range of vehicles, but the priority is to get started on that. Initially this will require government funding of itself, but the Government urgently needs to look at other stimulus packages, other financial incentives and means of taxation. That sets the context and if you like we can then go into the detail of our individual recommendations.
Q392 Paddy Tipping: I got the impression that you were fairly dismissive of the green element in the current package. Alongside that, I do not want to make a value judgement but it is a big leap that you are proposing. I just wonder how far that is practical in a political sense in the current economic climate.
Mr Smith: We do recognise in our submission that there is a major issue with deficit and, therefore, how you fund long-term investment. There has been a lack of long-term investment, or delays in investment, that we know are needed, for example in low-carbon forms of generation in different forms of travel. If we delay some of those investment routes then we are not going to get to where we need to be in terms of wider Government targets, particularly on climate change. We have referenced that in looking at the Grantham Institute and others. The Grantham Institute, led by Lord Stern, recommended a stimulus package representing four per cent of GDP and our submission recommends a similar level. To reiterate, we are not saying the 30 billion is all from the Government's pocket. What we desperately need is for Government to look seriously at different investment vehicles - green bonds, pay-as-you-save type options, market structures - that can help deliver this. There is investment available on these things and we are looking at a number of practical issues at the moment on energy efficiency which we can highlight later perhaps about how you can lever in this private investment, but it is for Government to set that market and direction that the private sector and others can respond to. We have seen that in limited ways, for example, in the renewable electricity sector. Part of our submission is how we build on those initial pieces of work to produce that change in direction. The net result of the Government response to the financial crisis is that we are further down the route to a sustainable economy rather than saying, "Where did we leave off on tackling our economy and turning it into a low-carbon economy?" We see the danger if Government focuses on short-term measures and puts carbon aside that it will make those longer term decisions harder when they come back to them.
Q393 Paddy
Tipping: If you put this green stimulus package that is
presently in the Budget in the context of international efforts, how does it
compare with the States or
Mr Smith: I will give you a brief headline and then Tim
can provide you with more details. Our
submission highlights that in the 2009 Budget that was 1.4 billion of extra
funding and we calculate that being 0.1 per cent of GDP, so obviously a
significant difference from the four per cent we say is necessary. International comparisons do vary markedly,
but some countries have done significantly more. Tim, do you want to give more details on
that?
Mr Jenkins: The review that HSBC
conducted I am sure you aware of, but that showed where they had found a green
element to a stimulus package an average of 15.6 per cent of the package was
green in some way, largely energy efficiency, renewables, public transport and
also water infrastructure was a major part of that. That varies from zero up to 80 per cent in
the case of
Q394 Paddy Tipping: When you say the car loan scheme, do you mean the Car Scrappage Scheme or something else?
Mr Jenkins: The Car Scrappage Scheme.
Q395 Dr Turner: You have made it very clear that the present green stimulus package is inadequate but I wonder if you would spell out what you see as the consequences of that inadequacy and also what you would do if, let us say, you were a benign dictator and had the four per cent of GDP to spend? How would you spend it and what would you achieve with it?
Mr Smith: Perhaps rather than comparing with a benign dictator we can compare with the South Korean Government and how they have chosen to do it. Their Prime Minister, to quote briefly when they launched their scheme, which Tim has already referred to, noted that they were in an unprecedented global economic crisis and they needed to respond urgently to that and then said the green new deal, which is how the South Korean government did refer to their package, will provide these: "The 21st century global environment is here, we will find new growth engines for this area". There have been similar statements from the Chinese government, which perhaps does accord more with your model, of the Chinese government looking at future economic opportunities and how it might get ahead in the global competitive race on that. If you look, for example, at energy generation and how smart grids work, how they will fit alongside new forms of appliances in the home and workplace, there are new markets for that and there is jostling to get those. If we look at how our current grid system operates we have a very traditional model, a very passive model, and the Government needs to set a framework for how the grid will work alongside the regulator to make that happen and that will drive investment. If we had a smart grid, much more active management of decentralised types of energy forums, that creates frameworks to invest in but the private sector cannot do that itself. For example, there is a lot now working on smart metering but it took the Government working with Ofgem to set the framework for smart metering to ensure it happens and how companies deliver it. There was not the incentive for them to do that by themselves. In a range of areas we have identified what we think is the overall investment, for example on retrofitting of the housing stock, on transport, et cetera, what funding is needed and what that might deliver.
Q396 Dr Turner: Apart from facilitating a smart grid, is there more that you think we could be doing with such a package to incentivise new renewable energy deployment?
Mr Smith: From the Government's existing package?
Q397 Dr Turner: No, not the Government's existing package but a package on top.
Mr Smith: There is certainly more. In the renewable electricity field the Renewables Obligation is being changed and that will create banding that will better incentivise offshore wind, biomass, wave and tidal forms of generation, but we need to realise that the targets that we have for renewable electricity are based just on electricity being approximately 20 per cent of the energy market, whereas we also know that the Government is looking at low-carbon vehicles and a large part of that is using electric vehicles, so the balance we can expect between fuels, heat and electricity will shift and electricity will grow and become a more significant component. We do need to start looking at how our electricity markets can deliver large amounts of low-carbon energy. We also know in terms of how the market works there are significant delays between current government incentives for new renewables and those renewables coming onto the grid and supplying into the market. There are a number of factors, but one significant factor is delays in grid investment and market signals on that. It takes a significant time to plan and develop those investments and we feel the Government needs to be proactive in working with Ofgem looking at underwriting some of those assets because Ofgem and National Grid are currently prevented from investing in assets because of fear of creating stranded assets.
Q398 Dr Turner: Do you think the Government is giving adequate market signals for newer renewable technologies, such as marine technologies? The double ROC system, for instance, will just about get round offshore wind going but that is about all it seems to be perceived to do by would-be investors at the moment. Do we need to do something in that area?
Mr Smith: Yes, we do. Partly that is by providing access to the
market. The most significant resources
for marine renewables are to the north of
Q399 Dr
Turner: In the early deployment phase
Mr Smith: We do not, no. Currently the Government's funds for its additional wave and tidal fund that it created have yet to be spent because the way it is structured has not worked for developers at the stage they are at, so Government needs to look at why those schemes have not delivered and renew them.
Q400 Dr Turner: Are you offering an answer? You are telling us there is a problem and we agree there is a problem, but have you got an answer?
Mr Smith: On the wave and tidal scheme, the issue there is about the constraints that were set up on that and the conditionality of some of those schemes, so we need less conditionality around some of those schemes. We could provide further detail to the Committee if that would be useful.
Q401 Paddy Tipping: That would be useful.
Mr Jenkins: I would add just a couple of points on that. The first one is just to go back to the Grantham Institute's work where they looked at different elements of a green stimulus package and then ranked them according to how they would deliver, and renewables came out as the second highest in terms of being able to avoid lock-in, generate jobs and give social returns. The other thing is the financial crisis has dealt a body blow to price and the idea that increasing the price maybe through the trading system will delivery virtually everything. We point out in our report that there is a need to revisit the types of financial instrument that will be able to deal with two issues. One of them is the de-risking, that it is not attracting prime feed-in tariffs, for example, to reduce risk more effectively and looking at ways of doing that, and that is some of the work we are putting forward on the green bond idea and moving that forward. The second is the deeper pool of capital that is required. If I could also pick up on the first point you made. You asked what would be the implications of not going further than the current amount, and in the case of renewables it is that delay that will mean we will potentially miss out on markets that we could develop technologies to exploit. We will miss out on being able to get the investments which will become more expensive later on and potentially it will threaten our ability to be able to meet our carbon budgets. These are all important issues.
Q402 Dr Turner: I do not want to put words into your mouth but it sounds to me as if you are saying that we face the risk of losing our technology lead in marine technologies that we currently have by a whisker and facing the same position that we did with the wind industry where other countries reaped the major benefits of the technology in terms of jobs and other economic benefits, and we will end up years down the line as customers paying through the nose for it.
Mr Jenkins: I think that risk exists. Work that we intend doing on the back of Prosperity without Growth will start to look at how different types of investment need to be evaluated differently, if you like, with carbon budgets and affecting how we see the economy and what is going to deliver. We have been doing some work looking at how investment is taken forward, how it is structured and what the instruments are to be able to make sure that both the scale and type of investment delivers on sustainable development objectives.
Q403 Mr
Weir: You mentioned in passing the weakness of the
grid in the north of
Mr Smith: In terms of our submission on
the redesign of the National Grid, that followed on a review that we conducted
of the work of Ofgem called Lost in
Transmission. The Lost in Transmission work looked at
Ofgem's delivery of sustainable development and through that we were able to
look at how it was supporting low-carbon generation, how it was looking after
vulnerable consumers, and a range of issues.
In this submission we highlighted that if we are going to achieve the
2020 targets the Government needs to be prepared to commit up to £5 billion a
year on grid improvements. That is over
and above the £7.6 billion that was already identified in the CSR 2007. What is needed is two-fold. Partly it is about the way the regulation
works to make decisions on future infrastructure where at the current time the
transmission access market means that Ofgem and National Grid cannot move until
they have an element of certainty about the level of generation, the contracts
they have in place to allow them to invest in new infrastructure, to put new
lines out or to upgrade the existing lines.
If you look at the wave and tidal sector that is likely to connect in
Orkney,
Q404 Mr Weir: Does it not boil down to someone, presumably the Government, has to take a leap of faith that marine energy is going to be substantial and to put in place a process to ensure the investment in that grid so we are able to bring it onshore and feed it into the grid? It seems to me to be a chicken and egg situation where marine energy are saying, "We are going to be wonderful but can't connect to the grid" and the Government are saying, "Well, show us you're wonderful and we will connect up the grid". How do you break up that logjam unless somebody takes that leap of faith and puts some money forward?
Mr Smith: I think that is true, there is this Catch-22. I would not describe it as a leap of faith. There is a calculation that needs to be made about when to invest and how to send a signal, but it is more about creating a market. The electricity market is a very regulated market and low-carbon forms of generation is a structured market in the sense that we have obligations, et cetera. It is not a free market where we leave developers to themselves. The Government clearly sends signals to electricity generators, be they the utilities or independent companies, of what it wants from them. It should be using the grid to send signals about low-carbon forms of energy, particularly on your question about marine energy. Part of that is making sure that the infrastructure that those developers need is in place. We feel there is an element of saying, "This is the type of generation we need and want, so we provide you with the obligation to pay you when you generate but we are also going to provide you with the route to market" because developers cannot provide that by themselves.
Q405 Mr Anderson: Can I ask for more detail on the funding. Your report said that the Government has a long-standing commitment to the principle of environmental taxation but has completely failed to capitalise on it so far. What do you mean by that and what can we do about that?
Mr Jenkins: The statement about the fact
that it had a commitment to it started in the 1997 Pre-Budget Report when there
was a statement of intent on environmental taxation with the general principle
of increasing taxation on "bads", such as pollution, and reducing taxation on
"goods", such as employment, mainly through employers' National Insurance
Contributions. During that period up to
a high watermark of 1999 there were environmental taxes that were brought
forward - the Climate Change Levy, Aggregates Levy, increases in fuel duty,
increases in the Landfill Tax - and many of those, not the fuel duty but many
of the other ones, also included cuts in employers' National Insurance
Contributions as a reduction of taxation on employing people. At that point the progress in terms of increasing
green taxation stopped and there was a large hike in employers' National
Insurance Contributions as well that removed the benefit that had been gained
from environmental taxation at that point.
The commitment still stands, however, as a percentage and the Green
Fiscal Commission's report recently has got the data in thereon the percentage
of the tax-take that is green in some senses has reduced since that time. One of the things that the Green Fiscal Commission
also points out is that there needs to be more public debate about these
things. The way in which green taxes
have been used so far in some cases has been good and in other cases has led to
argument and accusations of them being stealth taxes in some way. There needs to be a very open discussion
about that to be able to move forward.
The Climate Change Levy, for example, is a tax, the revenues from which
are used to cut employers' National Insurance Contributions. They are also used to provide enhanced
capital allowances, a tax break for investments by those firms in the correct
things. There are negotiated agreements
that allow them to commit to make reductions for only paying 20 per cent of the
tax rate, and also an exemption for renewable energy. Also it was the method by which the Carbon
Trust was set up to provide advice and saves
Q406 Mr Anderson: Can you take us through how green bonds would work in practice?
Mr Jenkins: Yes. Green bonds are both growing in terms of
quantity and diversity in terms of how they operate. Just to give some examples. In 2004 the Bush administration in the
Q407 Mr Anderson: Is anybody promoting this? I am not saying this in a bad way but it almost sounds too good to be true. If it is as good as you say it is, why are we not getting on with it?
Mr Jenkins: There is a lot of debate and various bodies. I can certainly send you documents of people who have come forward with suggestions, such as the Aldersgate Group and there is another group within the City that is putting forward ideas, Climate Change Capital. These are in the detail of exactly how that operates. There is a connected proposal about being able to disburse those funds and whether you do that through a green investment bank is another idea that has been put forward. I can certainly provide summary documents on those to the Committee.
Mr Smith: To underline how those things
might be used, we are doing a project at the moment where we are working with
DECC, CLG and the Housing and Communities Agency, and we are looking at a
project that is called Delivering Neighbourhood Retrofit which is looking at
the scale of the challenge we have in increasing the efficiency of the nation's
housing stock. Yesterday the Committee
on Climate Change were discussing the report and said they estimate £15,000 per
household, that is on average, may be needed.
Different commentators say different things. Those ranges are from £5,000 to £80,000 per
house. The £80,000 is problem houses, if
you like, or hard to treat houses. We
know the scale of investment is going to be difficult to achieve. The Government's vehicle so far has been
either through direct grant funding, so fuel poverty schemes where they provide
funding directly to householders, or through utilities, so we have the supplier
obligation where a percentage of people's bills is used to fund back energy
efficiency measures, but we know the scale of that is going to be very
difficult to achieve just through those routes, so the Government does need to
look at options. One option is through
green bond-type routes. Another option
is through the pay-as-you-save market where somebody takes on that work and the
cost of that work and it is recouped over time.
The Government is looking at trialling some of that. We also know from discussions with financial
institutions, particularly pension companies, that they are looking for
long-term investment vehicles. One of
the lessons from the financial crisis is that they need to look more closely at
different types of investments they choose, so they need shorter term
investments but also long-term guaranteed investment routes. They are interested in this but, again, they
need the Government to set the framework for that market. It is worth highlighting that it is not just
Government at the
Q408 Mr Anderson: You have moved on to the Government's role and in your report you say there is a need for the Government to take a stake in the ownership of energy related assets. How is that different from old-fashioned nationalisation? You also say that we will learn from the financial crisis, but are you saying the situation in energy is as serious as it was that faced us a year or so ago in the financial field?
Mr Smith: On that second point, there are concerns about the long-term investment in future generation and creating the vehicles that will produce efficiency gains, so demand reduction. We are not seeing the scale of investment needed to meet future sources to allow us to diversify and move to a low-carbon form of generation both for standard electricity generation and, as I said earlier, for things like electric vehicles. The market is not shifting quickly enough so Government needs to look at what it can do through regulation and investment to do that.
Mr Jenkins: One of the proposals is that at this time, and we have seen it in the finance sector and more recently in the public transport sector with the East Coast Main Line as well, Government in those particular cases does so as a method of saving particular institutions. We have raised in the green stimulus package that one of the options that could be looked at is whether particularly in the energy sector where - significant is almost a term that is not sufficient enough to be able to describe it - significant investments are required in the next two decades, it may be one of the options for them to do is to look at taking an equity share in some of those infrastructures, particularly when it will be government money that is often flowing through those, to help them develop particularly within the grid or particular pieces of infrastructure. We have had debates and discussions around that and we put it forward as one of the ideas that needs to be looked at in the options. We do not have any specific proposals on that but we are having discussions about how that can be taken forward.
Paddy Tipping: Let us move on and talk about new priorities. We are having a valuable discussion but in order to make the best use of our time if we can be a bit more focused, and I am talking to my colleagues as well as you two - I was going to say "lads" but that is a bit demeaning; it is where I come from.
Q409 Dr Whitehead: The Government's priorities, certainly as highlighted in their memorandum to us, emphasise concentration on five key technologies and they underline carbon capture and storage, particularly offshore wind generation and wind generation more widely, development of marine energy, as we have already discussed, and obviously the development of nuclear energy as a low-carbon technology and the development of low-carbon vehicles. What is your view of those priorities?
Mr Smith: If we start with carbon capture and storage, that is a critically important area to invest in based on the fact that it has yet to be proved how that is done at scale, so the earlier the Government can invest and demonstrate the technology and bring market confidence to that technology is important. As you say, we have discussed renewables. Our input on that is we particularly want to see a focus on the grid for the reasons we have already outlined. There are currently investment routes and things like the Renewables Obligation. We would like to see more grant funding for new renewables, particularly marine and decentralised renewables, what is missing from the Government's priorities is that issue about how the grid is put in place because we do see the way that is delivered is one of the things that is holding back those technologies. On the question of nuclear, we have reviewed nuclear ourselves and provided advice to the Government some three years ago. To sum up very briefly, it was a very thorough report and we felt that while nuclear was a low-carbon form of generation we had concerns about the long-term impacts of nuclear, issues about risk, cost and long-term waste implications. Also, most relevant here is the concern about lock-in, that significant investment in nuclear would crowd out other investments in newer technologies. One of the things that the Government has highlighted in its nuclear programme is that it sees nuclear as a mature technology that the market can deliver. Therefore, we would see that Government support should go into merging loads of technologies. The final point you highlighted was low-carbon vehicles. Low-carbon vehicles is important in making a shift, but we said that the Government should focus on two things: firstly, on investment into the public vehicle stock, which is significant, and that will provide both leadership from Government proving some of these technologies and ironing out some of the problems before we might then move to asking every individual to buy an electric car and install a plug-in point outside their house. The second area of transport we said Government should invest in is more investment in walking and cycling. As a low-cost option it ticks more boxes for different reasons, but one of those is it provides people with transport options which are healthy, easy to access, provide equality issues, help with health and are cheaper for individuals. One thing Government wants to do is encourage saving and move away from fuelling. One of the reasons why we said we should move away from fuelling is debt, so rather than encouraging people to get a loan for a new electric car we should be saying, "How can we make it easier for you to meet your transport needs without having to get in a car?" We felt that was something we should be doing more on. The other area we highlighted which the Government has not is about how to upgrade the housing stock and increase the efficiency of the housing stock. We feel that is a major challenge. The Government has recognised that in things like its heat and energy savings strategy, but we feel the scale of that and the pace at which we want to see government investment in energy efficiency is not there, so we need it to be a priority.
Q410 Dr Whitehead: Indeed, in your memorandum you have identified a number of different areas, some of which overlap with the Government's priorities and some of which, as you have highlighted, are very different. Could I ask you some specific questions on your particular priorities. You have mentioned redesigning the National Grid and we have discussed some of that. Do you not think that the mechanisms you are suggesting in terms of investment, and you have mentioned investment in stranded assets, might appear to suggest that, as it were, the Government invests in things which are not going to work and the private sector invests in things which will work? Does that strike you as a problem in terms of how you might deploy the resources that you identify for a green recovery?
Mr Smith: Certainly in the way you have
portrayed that, yes, and if that is what we have conveyed that is not our
intention. This needs to be done with
care. This is more about the Government
setting out the market framework to encourage investment in certain
technologies. With renewables as a
technology, we know that renewable development has to occur where the resource
is. The traditional regulatory model for
grid investment does not look at resource, it looks at distance to market, the
balance between demand and generation.
The current regulatory model encourages people to build generation
plants near to demand, which means central and southern
Q411 Dr Whitehead: I am not entirely clear from your evidence and what you have said today what difference you are making between the extent to which the Government might, as it were, physically provide the funding for renewal of the grid and the dispersal of the grid and the redesign of the grid in the way you have described and the extent to which they put in place the framework within which that can be done. Which do you think is the right way forward or do you think there is a combination of both required?
Mr Smith: It is a combination of both of those, putting in place the framework, so getting the regulation right, but also helping support the investment. One way we called for that was through a revolving fund that can help underwrite the connection of new renewables, but that fund is a revolving fund so it can be used for other investments later. Once generators build and plug in they contribute back towards that investment which can then be offset and used again to encourage other investments. It is not simply a case of Government just funding new grid infrastructure and that grid infrastructure being a free asset, it is about how you share the risk of that with developers, whereas currently the risk is almost solely borne by those developers in how they commit and contract to connect to the grid. The second side is about how Government invests in new control equipment, substations, et cetera, and encourages that active smart grid system that we do not have yet.
Q412 John
Robertson: Part of the biggest problem about the grid is
planning. We have got the Beauly-Denny
line in
Mr Smith: Yes, planning is not in
there. The report highlights the
investment vehicles that we could use.
Delays in planning are obviously a significant factor as you have
said. There are no quick answers. We have looked at planning in various energy
reports we have done, including our Ofgem report, and reports on wind and
nuclear. One issue we highlighted was
the need for proper consultation and involvement in decisions so some of the
controversy can be taken away. You will
never take all of the disagreements and controversy away. It is worth highlighting that good planning
does not have to be slow planning. You
can be thorough but manage things with a clear timescale. We have just been made a statutory consultee
for the Infrastructure Planning Commission, so one of the things we are now
doing is looking at the planning statements which are just coming out. We will be looking at the energy statements
that came out, although we have not yet done that. I can provide further information back to the
Committee on what we say to those, if that would be helpful. We have views about what the Government
should do and what the Infrastructure Planning Commission should do and one of
our concerns was about the democratic deficit of those decisions and how that
works alongside local authorities.
Nevertheless, there is a speeding up of some of those decisions. Some of
the work has been done in
Q413 John Robertson: There seem to be a lot of discussions and your wish list seems to be very long. Is it feasible that the Government could invest the kind of money that would be required to meet everything that you want? Should you not be refining it to what is really the bottom line, as it were? I cannot see the Government wanting to talk forever on various aspects of your suggestions, which are numerous. I would much rather see if you think there is going to be the possibility of an area and you need the Government's money to get the grid redesigned - I think the grid is a major problem, not just on renewables but energy in general - they need to start thinking about investment, but if you give them everything you have given here how could they possibly refine their ideas on what is needed?
Mr Smith: In our submission we do call for a lot. We call for investment across a significant number of areas and it is highlighting where we see investment is needed because of the targets and aspirations Government already identified for itself, particularly in the climate change targets. Our shopping list, if you like, is not a new list that we have come up with, it is our way to help Government deliver that.
Q414 John Robertson: But it is very big. It is too big.
Mr Smith: It is varied but we see those as the key six. In terms of how we are then working to support Government on the energy efficiency in housing, we are engaging actively with government departments on that, so our work there is about practical solutions and practical investment vehicles, so not just staying at the level of, "You need X billion and you need it by 2010 or 2016", but saying, "If you want to do this, and we have a shared view of what the level of commitment is and timescale needed, how do you do that?" Our project with HCA, DECC and CLG is about that, about saying practically how we can do this, how can we learn from existing schemes in parts of the UK that public investments have already proved, what might Government need to do differently but how can Government incentivise the input of private capital to make these things happen. While this is very broad, we do try and engage on that practical delivery level and help Government with some of the solutions and tease out the difficulties.
Q415 Paddy Tipping: So it is not all academic?
Mr Smith: It is not all academic
Q416 Dr Turner: Can I focus on the two principal areas of disagreement between the Government and yourself on priorities. The first of those is obviously nuclear, where I share your view that there is a grave risk that nuclear development will crowd out renewables. We are kind of stuck with that because the Government is clearly committed to the nuclear path and I see little prospect of Government rowing back on that commitment. What would you suggest Government can do to ensure that nuclear development is not at the expense of market investment in renewables?
Mr Smith: Partly that is by the Government ensuring that its funding is used on the development of new technologies. Leaving aside our advice, part of the nuclear debate that has gone on for a long time now but has been particularly intense these past three or four years was about the generation companies highlighting that they could provide a new generation of nuclear and could provide it without additional support mechanisms being needed and it was a mature technology well-understood, they could manage the risks within the financial market and the way the energy market is regulated. Therefore, if Government wants to invest in new forms of generation it should be looking at those forms of generation which are less proven. On a large scale one of those is CCS and we support the need for investment in demonstration plant on CCS because there are a lot of questions about how that should be done. In looking at how a new generation of nuclear may come through we would urge that Government looks at that being done in the standard marketplace, if you like, the energy generation market we already have. That was part of the original conditionality the Government set for nuclear.
Q417 Dr Turner: That does not address the real issue which is the fact that investment market funds are being directed towards nuclear, but anyway. The other main issue is energy efficiency. You want to see £11 billion a year invested in retrofitting the bulk of our existing housing stock which, like my own house, does not have cavity walls to fill. How do you see this actually working? It is obviously not realistic to expect the Government to stump up £11 billion a year, so how are you going to do it? I am sure the capacity is there in the energy supply market. Are you going to find a way of making the energy supply companies cough up?
Mr Smith: Not primarily, no. I mentioned the Government's heat and energy
savings strategy earlier in the discussions.
The consultation there was looking at how to invest in 400,000
households a year in what the Government termed whole energy house
makeovers. It asked as part of that
consultation what investment vehicles it might need and our response to that
was that it should look at pay-as-you-save vehicles. Those could be run by the energy supply
companies, the big six, if you will, but they could also be run by local
authorities, many of whom have a track record in energy efficiency work, or by
other companies, installation companies.
The idea is that those companies would be the ones that invest in the
house efficiency measures, so you would have a bill this size, you invest in
the house and your bill falls, say, by 30 per cent or 50 per cent or whatever
it is of the measures and a portion of that saving is then recouped by the
company that paid for the measures. That
is like energy service company models which we have discussed in this country
for a long time but have yet to take off and that is partly because of the way
the market is regulated. There is good
experience in countries like
Q418 Dr Whitehead: In terms of your priorities you have suggested £11 billion a year on the existing housing stock, £2 billion a year scaling up renewable energy supply, £5 billion a year redesigning the National Grid, £1.5 billion a year promoting sustainability mobility and £3 billion a year low-carbon investments in the public sector. How does that relate to your suggestion that a green recovery package ought to consist of four per cent of GDP, or is it just a wish list?
Mr Smith: It is not just a wish list, no. We identify in our submission where we see funding might come from. For example, on sustainable mobility we see that should come from the existing road transport budgets, that Government could easily switch priorities on that and direct a small proportion of that to sustainable mobility. In terms of other funds, for example one of the significant parts is the housing energy efficiency and, as I have just highlighted, we see that through some Government investment, particularly the Government investing in its existing fuel poverty schemes for vulnerable households, but primarily through looking at pay-as-you-save models. The fact the Government is piloting one of those schemes is good to see but what we now need is Government to move quickly into the pilot, learn from it and see how it can apply that. The grid scheme, some of that is direct investment but we see that through revolving loan funds, et cetera. We are not highlighting that this should all come from conventional deficit spending. Part of our wider work through Prosperity without Growth is that deficit model is unsustainable, so we need to look at that for a whole host of reasons. What I come back to is the lack of urgency and thinking about other investment models, green bonds, et cetera, pay-as-you-save models and the need for the Treasury in particular to look at some of those things and, as Tim highlighted earlier, the role of environmental taxation and the fact that the level of environmental taxation as a proportion of the tax-take is lower now than it was in 1997 despite the fact that we now know more about the problem, if you will, and the urgency of reducing the impact of some of those taxation models and the way the economy works. It is definitely not a wish list but there is a combination of ways that Government needs to respond to what we are calling for. Again, what we are calling for is only a reflection back to government of what it itself says it needs to do in terms of investment in the economy and moving to the economy to a low carbon base.
Paddy Tipping: You have made some interesting points about social returns on the green stimulus package. Mike, are you going to pursue that?
Q419 Mr Weir: Can you tell us a bit more what you mean by social returns and what you would get for your £30 billion package and what value you would put on these social returns?
Mr Smith: I will start and perhaps Tim can take it on. In terms of what we outlined what we were looking at in terms of social returns is a number of issues. Firstly, whether they would reduce reliance on scarce resources, so increasing efficiency would mean that the unit spend of the economy was less reliant on material throughputs; whether they would reduce carbon emissions and would produce economic savings, for example lower bills, reduced congestion, less pollution, whether they would improve quality of life through healthier lifestyles, so for example mobility and calling for walking and cycling. We also support wider government action on encouraging healthier lifestyles. And then protecting and creating a significant number of jobs. In terms of social returns we looked at a number of studies about the job savings for different types of investment, because that is obviously critical, and we felt that some of these areas were viable and very useful because the number of jobs per pound spent was high compared to other forms of investment, whilst also delivering good wider issues about reduced carbon savings.
Mr Jenkins: The only thing I would add, and unfortunately I am about to say that I have figures but I will have to send them to you, is there is a social return about balance of payments and security of supply. The German Government commissioned work looking at how their energy efficiency programme and their move towards renewables, which is significant, has affected their balance of payments and security of supply. Financially, it is significant to them for their economy. I am sorry I cannot give you the figure right now but I can send that to you. Particularly going forward at a time of increasing risk, that is a very important return for the economy. Just one more thing, if I may, on reducing carbon emissions and this may be going back to the idea that this was a very, very significant amount of money that was being asked for: we are not into an area of incremental change in what has to happen to be able to reduce carbon emissions. Again, the Committee on Climate Change report made it very clear that we are now at a stage where we have to make a step change and so the social returns that we were looking for, if we are honest, are those not incrementally pushing things forward but would make the far more fundamental changes that are required for the stimulus. That is important in how we responded to this.
Q420 Mr Weir: In your report you say that "significant unknowns in relation to
potential job creation and multiplier effects exist." Clearly the Government in looking at where
they invest their money are looking for returns, particularly in the current
financial circumstances. You also say
that the
Mr Smith: In our submission we highlighted those unknowns, if you like, and the work we did was looking at studies that had been done, for example the HSBC study comparing fiscal stimuli in different countries, but we also highlighted that there has been a discussion in government led by the Treasury for many years about a green revolution and a green fiscal stimulus and moving to a low-carbon economy but that the comprehensive analysis has not been done, so we would like to see the Treasury look seriously at that and do that, and that is something we talk about in detail in Prosperity without Growth, where we have 12 steps we recommended to government, and one of those is about investing in these forms of technology but getting more clarity about that. In our reports to government, we did look at a number of studies that had been done, as Tim mentioned, and we can provide you with more detail on that, but those studies did look at investment, the pounds per job comparator, and we did do some initial calculations purely on their analysis of if an overall £30 billion package was delivered by government what the job creation potential might be, so we can submit those details to you.
Q421 Mr Weir: One of the things that the Government will say when the HSBC study
is quoted at them is that is fine but the
Mr Jenkins: I actually
mentioned that point earlier on when I was saying that the Government often
responds by saying that £50 billion had already been earmarked for spending
between 2008-11, and I suggested the reasons as to why that was not about a
stimulus package now, and I think those still stand. In terms of the
Q422 Mr Weir: I understand that but the point I was trying to make was if you had not done anything in the economy, for example to retro-fit old houses, to deal with insulation, or whatever, then clearly a huge number of jobs can be created. If you have already got a massive programme going then the significance of it might be less. I am just trying to get some idea of where we stand in that.
Mr Smith: To go back to the HSBC report, which we reference, HSBC calculates that the UK's investment is £30 billion and of that they classify 2.1 as being green, but if you look at, for example, France or Germany, both those countries have a significantly higher proportion of green fiscal stimulus, so it is those countries that are at a similar level, or perhaps ahead even, in investment in low-carbon technologies. I do not think it is the case that in this country we have already put that investment in place and we are waiting for the returns. As Tim highlighted, the Committee on Climate Change had noted that it is a step change of investment that is needed and we have yet to see that here. The HSBC analysis shows that when we talk about Korea and China we could argue that those countries are investing in parts of the economy that they do not have but we already have, but if you compare us to Canada, the US, Germany, France and other countries that have similar levels of economic activity, they are choosing to put much higher levels of green stimulus in place now because they recognise that is the investment we need. We certainly cannot say we are ahead of those countries in tackling some of these issues.
Mr Jenkins: The
uncertainties about how many jobs can be created and the potential for doing so
varies between different parts of this package.
One of the areas where the uncertainties are fewer is on retro-fitting
and energy efficiency. One of the
reasons for the
Paddy Tipping: We are coming towards the end of our time but Alan particularly wants to talk to you about your publication Prosperity without Growth because there are some interesting ideas in there.
Q423 Dr Whitehead: I am very sympathetic to a number of the points that you make in your report Prosperity without Growth but if you put your document Prosperity without Growth next to this document on stimulus would they not mutually combust?
Mr Smith: I take your point, yes! I do not think they would mutually combust but they would rub against each other and sparks might fly. It is probably just important to highlight the intention of Prosperity without Growth. It is part of a long-term project by the Sustainable Development Commission called Redefining Prosperity, which is looking at how you define the success of a country, if you will, and looking at what the differences between growth and prosperity are in that, and sustainable development highlights the fact that growth is a means to an end; it is not the end. We do not have growth for its own sake; we have growth because we want it to deliver for our society, so Prosperity without Growth looked at whether growth as currently structured is delivering on those aspirations, and we found serious concerns about that, based on inequalities that are still present in society and based on the ecological limits, both nationally and globally, that are not being resolved. One of the questions that presents itself in this discussion about moving to a low-carbon economy is that proponents of that say if we can just take carbon out of the economy then we will solve a lot of these issues. That is where there is a definite friction because Prosperity without Growth finds that resource throughputs and material intensity is increasing, not decreasing, and if we grow the economy then we can take carbon out of the economy but the unit input of carbon into the economy needs to fall substantially and much more than has ever been achieved anywhere. There are difficulties in that but at the end of Prosperity without Growth we identify 12 steps for government in moving towards a sustainable economy and we have tried to be practical in those. We do not end with clearly defined and practical solutions for what government needs to do but we do call for more work and further thinking. We found that since publication it has done what we wanted, and more, in that it has created and sparked a wider debate. It is a debate that we are having within government. For example Tim Jackson, who launched the report, was in the Treasury last week giving a workshop and seminar with economists on some of the findings, but it has also captured attention in response to other work, so for example the Sarkozy Commission that reported recently and the work of Joseph Stiglitz and other economists and other institutions also trying to wrestle with these ideas. Yes, they are not fully compatible but we are comfortable with that because they highlight the discrepancy and the lack of understanding that we have about our economy as a whole.
Q424 Dr Whitehead: The suggestion you make there is that therefore they are the irritant that makes the pearl rather than the pearl itself. One of the problems that I am grappling with in terms of what we have discussed so far this morning is that in order to get to a global economy of prosperity which has no growth but develops knowledge within a sustainable framework for example, is that in order to move to that, as Stern for example says, you have a requirement for a large amount of investment in the green economy, that produces a large amount of jobs, but that investment is brought about by growth and recovery. So the suggestion appears to be that a substantial amount of growth and recovery brings about a no-growth economy through green measures. Is that right?
Mr Smith: Tim may want to come in but I think the answer from Prosperity without Growth would be that we are not sure and we do not have sufficient confidence to justify that statement because in the way growth is currently structured growth relies upon increasing efficiency, and so growth does that partly through increasing consumption and increasing resource consumption. As I highlighted, while we are calling for changes to the economy to invest in low-carbon forms, there is a concern that by itself that will not produce an economy which respects the environmental limits and delivers on those social goods, so more thought is needed as to how we measure wider progress but also how government itself looks at monitoring and inspecting some of those limits we have identified.
Mr Jenkins: One of the overlaps between the two reports is around the idea of investment. I think Prosperity without Growth is clear that it is the beginning or a milestone because that sort of work has been going on for several decades. One of the things that it is saying at this particular time is we need work, and particularly government needs to be informed as well, on how we develop our view of investment and what is a good investment from where we are currently now to one that is within a finite constraint of carbon and delivery for prosperity, and that is a debate. That is a huge area but a very important one. That is one of the areas we will be taking forward from Prosperity without Growth to talk through government about how that can be developed with different departments.
Q425 Paddy Tipping: I think it shows that we need a workshop here to talk about this because this is a very tough area to talk through. I am grateful for you putting it on the agenda for us and we will need to do some more work on that. Tim, you have promised us over the period of the last hour quite a lot of information and we would be delighted to receive it. Maf, at one point you talked about the MPSs that were released on Monday. We have all got to do a lot of work on this over a very quick period of time, so as soon as you have got something that you could share with us, we would be very grateful. I think there may well be an opportunity for us to talk some more about that some time in the new year. Can I thank you both very much for coming along. I found it a very stimulating and thoughtful discussion. I know it was difficult for you to come today so thank you very much indeed.
Mr Smith: Thank you.
Memoranda submitted by British Electrotechnical and Allied Manufacturers and Energy Services and Technology Association
Examination of Witnesses
Witnesses: Dr Howard Porter, Chief Executive Officer, and Mr Colin Timmins, British Electrotechnical and Allied Manufacturers; and Mr Alan Aldridge, Executive Director, Energy Services and Technology Association, gave evidence.
Q426 Paddy Tipping: Welcome to Howard Porter and Colin
Dr Porter: I think any fiscal stimulus on energy and climate change is to be welcomed and that is absolutely true. We believe there are lots of other technologies that are in existence that could be taken forward probably quicker than some of the areas covered in the stimulus package. We would very much support many of the technologies mentioned earlier by Dr Whitehead in terms of describing them to the previous speakers, but many of those are not going to make a massive difference in the short term. Certainly the submission we have put forward highlights that there are a number of areas, and we have identified four particular areas that we think are relevant very quickly, but there are other ones that can come on in addition to those four. So that is an issue. It is to be welcomed but there is a big hole in things that could be done tomorrow, next week or next year which we believe are not being carried out at the moment that could be.
Mr Aldridge: We are very positive about the amount that has been done. We think it is not as much as it should be, which is obviously what has been said in the previous session. Our centre of gravity is very much in the non-domestic area. Probably about two-thirds of what we do is in that area. We did not see much in that stimulus that is helping that particular area and we think what needs to be done is that there is a whole issue in the way the building stock is actually managed in the UK and we feel that gets ignored in these things. We look at technology and applying technology, which is obviously the right thing to do, but then there is an operational gap between what is in the package in the way of technology and how it is delivered in terms of its actual energy performance. We saw nothing in that stimulus package which helps to tackle that area of activity.
Q427 Paddy Tipping: You have both made that point. Tell us what should be done. Our last discussion was pretty theoretical at times. I get the impression that you and your members are much more practical. What is your prescription?
Dr Porter: Certainly from our side, and Alan can add from his side, we have identified probably about a 30 per cent reduction in the losses in the electricity grid and then in the buildings identified of the products that are available now that could go forward. We have also identified a number of exemplars as to the size of the benefit if that happened but also, very importantly, the barriers. There are a great many barriers that vary a little depending what sector you are in, from high-voltage transformers, down to smart metering, down to lighting controls and heating controls. There are a lot of different barriers as to why it is not happening. Within the stimulus package we believe that there could be a great deal done from the stimulus package probably at less overall cost but with more immediate gain going forward. I will maybe hand over to my colleague Colin who can give an example on heating controls, which is one area we are particularly keen on.
Mr Timmins: As Howard
said, we have worked with our members to put together a number of papers
looking at some of the technologies that are currently made by our members with
the potential for carbon savings and which are not realised at the moment. Of the six papers we have put together so
far, what we are trying to do is identify what the carbon savings could be,
what the economic benefits could be and what the barriers are and the solutions
to that. Of the six we have done so far
the total carbon dioxide savings come to about two per cent of total
Mr Aldridge: Just to give three examples of things that could be used, and there may well be others, if we take the energy services model, and that has been in discussion, there are barriers to that. Two of the risks for example that limit the number of things that the companies in that field work on are, firstly, the risk in terms of developing a project proposal, which can take anywhere between six months and two years to come to fruition and there is cost in that and, particularly where it feeds social housing, there is a risk there in terms of the income from it, so in terms of the stimulus package perhaps looking at mechanisms to support either end of that project whilst allowing the contractor to take the operating risk in the middle would be a way forward, at relatively small cost compared to the overall investment and cost of that project. That is one area. Another one which we are very keen to look at is the spread in the use of display energy certificates, which we believe is a particularly excellent management tool that should be applied universally within the non-domestic area. They could be supported by metering and the technology which we call automatic monitoring and targeting, which you may possibly have come across, which delivers the data. In those systems you can press a button and achieve literally within a minute or two the actual display energy certificate at very low cost compared to things like energy performance certificates. So that is an area that we would welcome input into. The last one is we think that the whole system of enhanced capital allowances is not functioning particularly well. We think that needs to be focused very much on the retro-fit, which was mentioned earlier, as opposed to new build, and the value of it needs to go up three, four or even five times from its current method of delivery. We do not think the economic stimulus is there in capital allowances and again a refocusing of funds already there would actually help to stimulate the retro-fit market.
Q428 Paddy Tipping: I think your headline central message is that we can do more on energy efficiency. This seems a pretty straight forward message. Why is the Government not getting it?
Dr Porter: That is a very good question.
Mr Aldridge: Our view is that there are many overarching policies that we think are very good and correct. The Climate Change Committee set up the targets and many of those things we think are right. Where we think there is perhaps more ambition to be seen is in the development of the specific targets. If I take for example the CLC energy efficiency scheme, the initial view of that over the period to 2020 was to save 1.2 million tonnes of CO2. Our view was that was a very low ambition. I believe that has gone up now to something like four million, but that is an example where we believe developing that ambition can achieve an awful lot more.
Mr Timmins: One of the problems that we have picked up in working on exemplars and also in the White Paper we did about a year ago is that from our perspective and from industry's perspective we do not necessarily make government aware of the savings, we do not specify exactly what the savings potential is, what the barriers are and what needs to happen, so that is something we are trying to work on and be proactive about it. One of the aspects is there is a greater need for government and industry to work in partnership. To a very great extent with existing technologies it is about how you get those technologies to market. Obviously industry has a lot of experience of doing that and, to a great extent with these technologies, if the framework around them is put right and some of the barriers are addressed then the market can get on and deliver. Power factor correction is one of the exemplar technologies we have looked at where, really, if there was a regulatory framework in place which adequately penalised people with a poor power factor and made sure that the energy suppliers and distribution networks were making efforts to tackle that, then it could be addressed and the market could deliver. In answer to your first question, it is really a job for us to do to make sure we communicate that effectively. More of a partnership where we start talking about technologies and problems rather than just responding to proposed solutions would be more productive.
Q429 Paddy Tipping: Let me pursue that notion of partnership. There is an interesting phrase in your written evidence: "BEAMA believes that the Government must regard the industry as partners" - the point you have just made - "not as opposition." What do you mean by 'not as opposition'?
Dr Porter: Maybe if I could deal with that. I used to work for a government agency and I now work for industry and I have seen it from both sides and I think there is still, unfortunately, a mistrust between government, particularly civil servants, and some industry groups. That may be all our faults from both sides, including our own, but in order to go forward genuinely both sides need to get an increased trust. In order to meet the very large targets that are out there, industry needs to provide the right kit, have the right attitude and be trusted. Largely in our role we try to make that happen. There needs to be a similar reaction from government and civil servants, which in all cases does not exist at the moment, and certainly we are very keen on that. There are a couple of examples that we are already working on now, for example, a heating and hot water alliance between some government people and civil servants and industry, and that is the sort of thing we would very much like to see going forward. That is not to say that there are no demands to be made on industry, absolutely not, but it is much more a partnership arrangement. There are some very boring, very specific barriers on some technologies which I do not want to bore you with today, but these need sorting because there are some real hard barriers that when you delve down a little bit you cannot do it or you do not get a rating and if you do not get the rating therefore you do not get the fiscal benefit and you do not get included in the scheme. There are lots of those sorts of barriers that need to be worked through in an effective way to allow technology to go forward. In some cases it does not need a great deal of change. It just needs the will to change and to remove that barrier to allow the technology to go ahead.
Q430 John Robertson: I just want to pick up something Mr Aldridge said about we should not concentrate on new build, we should concentrate on retro-fit, but surely if we do not concentrate on the new build it will be the retro-fit in the future? So do we not want to get everything right for everything that is coming from hereon in, and hopefully still be doing some kind of retro-fitting, but surely new build must have the priority at this point in time?
Mr Aldridge: If I can try and put that into context, we put that forward from the point of view that, by and large, we think the development of the Part L building regulations, the path, the trajectory of that to Zero Carbon buildings is being handled well. There are specific discussions on particular issues within that but we think the overall framework is working well and we think that should be used as the main way to achieve performance within new buildings. We believe the biggest issue with that is enforcement. The actual regulations themselves are developing very well but we do not think enforcement of them is 100 per cent. We are not ignoring new building. We think the strategy is working pretty well and moving pretty well but it needs to be enforced.
Q431 John Robertson: If the strategy is there then I presume the rules governing what you are talking about are there also, so who should be doing the enforcing?
Mr Aldridge: It is enforced through the building standards officers in local authorities, but also there is obviously a link back with Communities and Local Government, as the people that write these things and approve them, and perhaps there needs to be more interaction to demonstrate compliance in that and to prove that these things are actually being put in place. We see various buildings where it is not there.
Q432 John Robertson: So why is that?
Mr Aldridge: There are obviously local discussions that go on between the building standards officers and the people that are putting forward the plans. It is an advisory issue, so there are occasions when it does not get 100 per cent application.
Q433 John Robertson: So does that mean then advice is given which is not really advice, it should be the rules that the build is governed by, and they are not being done? If they are not being done, then whose responsibility is it? In other words, who is guilty for it not being done?
Mr Aldridge: The legal responsibility, so far as I understand it, is the building control officers, but we do think CLG should take a larger role in establishing just how compliant the new building stock is. We feel there is a gap there that they could usefully put resource into.
Q434 John Robertson: Do you think it is deliberate or do you think it is not enough people to do the job?
Mr Aldridge: It is probably like all of us, we have got too much to do and too little time.
Paddy Tipping: That sounds like this Committee! Des?
Q435 Dr Turner: Not surprisingly, given your membership, you place energy efficiency at the top of your list of priorities and of course it is an area where performance in this country has been lamentable and we need to up the game enormously. Personally I think we have to address the area of retro-fitting because so much of our stock is not new build. If we only concentrate on new build it will only address a small percentage of our housing stock. How do you think we could scale up the effort, because at the moment there are many government schemes, the Warm Home scheme, etcetera, but they are only skimming the surface and there is so much more potential that can be achieved? How would you like to see the Government step up and make a step change in our approach at deploying energy efficiency measures?
Mr Aldridge: The main thing we want to achieve in the non-domestic side is for an energy manager or facility manager to take action on plant and equipment that is currently working, so he has no problem with it but it is not energy efficient, how do you motivate that person and say, "I will go and change those drives to variable speed drives, I will change those valves or those meters or whatever." That is what we need to try and achieve and I do not think the policies are achieving that at the moment. There are two ideas behind that. I have already mentioned one which is revision of the enhanced capital allowances, which I think would be a good stimulus to achieve that, but also coming back to the display energy certificates, if we universally applied those, then obviously there is a reputational factor which people need to take into account, but we could consider having minimal levels of that, so for example within two years you need to move from a G rating to an F rating and, in the same way that you cannot operate a building if you do not meet fire regulations, maybe this issue is so serious in terms of climate change that we should start putting minimum regulations in place to try and raise the barrier, raise the level at which people respond.
Q436 Dr Turner: Would you apply this to shops, for instance? If you go into large stores they are so over-heated they are criminally uncomfortable and their entrances lose enormous amounts of heat and you often find heaters over the door which are just heating the outside. Would you apply this principle there? Do you think there is scope and acceptability for regulation which would actually be quite punitive if companies did not comply?
Mr Aldridge: I think there are a lot of private sector companies that are keen to go down the display energy route and actually give their credentials, if you like, in terms of what it is they are actually achieving, so I think there is some appetite out there (although I would not say it is 100 per cent by any means) to do this in order to demonstrate the green credentials and the brand value of being energy efficient, being seen to be green.
Q437 Dr Turner: And what measures do you think we could take to improve the performance in the domestic market? The Sustainable Development Commission is proposing £11 billion a year in investment, which might indeed make a difference but how would you see that working?
Dr Porter: That would be nice! I think very briefly it is worthwhile explaining how some of this industry is moving forward. I agree to an extent with Alan in terms of having minimum performance for products, and we see that being done through a big European Directive called the Energy-Using Products Directive, which is going through various products and weeding out the most inefficient, in principle, that is a good measure, if it is done correctly, and that will, effectively, over time remove the most inefficient products from the market place, lighting being the number one at the moment. You are aware that certain types of bulbs are no longer available in the market and that is primarily through that European Directive and our implementation of it. That is the first thing. Products over time will become more efficient and manufacturers will then compete on efficiency rather than competing just on price. That is a very important thing from a product producer's perspective. However, we come down to householders, you and I in our house making decisions on what we invest in to improve our energy efficiency. I think this is an absolutely key point. It is a little bit outside the manufacturer's role. I think the manufacturer can provide the technology. I think this is a very important point in the future: to what extent can technology automate the system to make it more efficient without taking away the decision-making of the consumer, where it is their house, they want to control their house, they want to do things in their own home, but in many cases technology can automate some of that decision-making. You could give control equipment there and once you move into the smart metering arena, there are many possibilities of using relatively simple technology, but it is still quite advanced for most houses, that can automate either the tariff or the use of a washing machine at certain times of the day or indeed to automate the control system for lighting and heating. The danger is that it takes away the decision-making of the consumer but it will probably save the consumer five, ten or 15 per cent of their energy use in the background, with of course an override for the consumer to do it. That is an area that has to be grappled with, not just from the industry perspective but from a social perspective as well going forward. I referred there to smart metering and, without going into too much detail, there is a recognition that when the full details of what is going to happen when that roll-out goes ahead it is absolutely vital that consumers accept the technology. If the consumers do not believe that by having this technology in their homes it will give them a benefit, it will help them control their lives better and give them lower bills, basically it will not be accepted, it will not be used and it will be a waste of money. There is a real effort there needed. It includes education, it includes regulation, it includes local authorities, very importantly, to help people, it involves charities, and it involves central government providing the framework for really educating and informing consumers what they can do in their homes.
Mr Timmins: What I do think is missing for existing homes is the right context for people to understand why they should be doing this. We can introduce various mechanisms and incentives but if they are for things that people do not want in the first place, or do not see a reason for having, they are still not going to take them up. There is a useful parallel with new homes because Zero Carbon Homes by 2016 has set a clear context for the building industry and for everyone working in the building industry of why we are doing this and why we are moving in this direction. It is resulting in some real advances in thinking and in practical application to make sure this happens. In existing homes we have argued that what you really need is something to say to people at a certain point in time you will not be able to sell or rent a home unless it meets a minimum level of efficiency and these are the things that you need to do, and then to soften that a little bit you can offer people discounts and incentives and grants, with that context in mind, so you are saying to people you are going to have to do this at some point, it could cost you a lot of money in the future but we can help you now. That works as an overarching policy. I can understand why government might not want to go down that route. It is not a very good message to give out to people. Another alternative we have looked at - and the energy services model has been mentioned before - potentially your energy supplier says to you, "Your current energy bill is £80 a month. We are going to start charging you £120 a month but we will deal with your energy-using systems. We will replace your boiler when we think it needs to be done and that upgrades your system," and so on, then the regulation is put on the supplier to actually reduce the energy use in that home, but it is at a fixed rate for the consumer so they do not have to think about it, which I think is the way most people want to work with their energy bills. The third option is to try and encourage people to make the changes themselves. As I said, that is very difficult without the right context and I think that is the area we are in at the moment. I have not mentioned a house-by-house approach and the scale of that is ---
Q438 Paddy Tipping: We will come to that.
Mr Timmins: If you are going to a convince consumers to make these changes, I think they need a very clear message and at the moment it is a very muddled message. You see a lot of feedback saying that people are confused and they do not have information. As I said at the outset, heating and hot water is 84 per cent of your energy use so that is where people should be starting. I think there should be a clear message to that effect and we should maybe play down some of the messages around recycling and so on, which are all good things and all have a role to play but I think it is confusing people as to what they are achieving through this. I think there needs to be a much more focused message on the things that we want to achieve, based on some evidence of the savings potential that is out there, and then industry can work within that as well to make sure that the supply chain is right and the capacity issues are dealt with, and that is how we can get there. Those are options and there are different ways of doing it, but we probably need a combination of a lot of these to actually make real progress.
Q439 Dr Turner: To bring the average home up to the standards that are really desirable involves an investment of £10,000 to £15,000 per household, which most people cannot readily find in their back pockets. Do you think that by a combination of cajolery and regulation it is possible to get the electricity supply industry to fund this?
Dr Porter: Clearly we have had a system through the utilities for 15 years plus now, ramping up in terms of scale, which has done an awful lot of good and has put a lot of energy efficient products into homes. I think there are some government plans to change that into a supplier obligation model where there is a bigger obligation on utilities to actually provide this equipment back. I think that absolutely is the right way. I believe there is a great opportunity, if we get it right, when those utilities are also rolling out smart metering systems at the same time, whilst they are in homes, whilst they are doing something in the building, having taken my previous statement that we have to engage the consumer first to make sure it is not rejected.
Q440 Paddy Tipping: We will have two minutes' silence and reflection. Thank you all very much. So, Howard, you were talking about an individual household approach doing a whole package.
Dr Porter: Yes, I think there is an opportunity to use the utilities and other companies that are going into homes or doing a service within that home and trying to then link in upgrading the system or upgrading elements of it via one of those, hopefully, trusted people going into the home. This is not to say that the heating installer or the electrician or any other service provider into the home should not be involved, absolutely, if they need to be involved to fit the equipment correctly and make it operational, but it is the opportunity to make the consumer actually make the decision to make a purchase or to make an investment. Interestingly, the £15,000 you mentioned earlier, you can do an awful lot for 15 grand in a house. In fact, you can do an awful lot for five grand. I am doing a system in my house at the moment. I have moved house and I am upgrading it and you can really make a big difference in a house for I think less than £2,000, very effectively focused on what you do first. I think it is those sorts of measures that need to be done first. It includes insulation and heating controls, before you get into anything that is sexy or new or renewable, which should be there but only once you have done the basics and got those houses up to a reasonable level. I think it is those service models that could really be advanced in the future, as I say, linked to smart metering because there will be utilities putting in smart metering systems with home area networks which introduces other possibilities for controlling equipment. They will be going into houses doing stuff and we need to make sure that there are the right procedures in place so that other upgrades can happen at the same time.
Q441 Mr Anderson: I think my question has been covered, Chairman, but I want to raise this issue again about your contact with the government. If somebody coming along with a really good idea, for example I support somebody making variable speed pumps, and there is the potential for those to be installed in something like 16 million homes in this country, at a relatively small cost relative to what the savings could be; how would you get that idea into government circles so they can think, right, this could work, it could be a way forward?
Mr Aldridge: Can I start because I mentioned the building regulations and we are quite pleased with the progress there. Variable speed drives for example in air-conditioning were introduced - and I was involved in this - in the last round in 2006 and that has transformed the market absolutely on that side and the energy savings for the drive alone are of the order of 40 to 50 per cent of that energy, so there is already some evidence that it is in and working more in the non-domestic area. We are in discussions at the moment about achieving the same sort of effect for the pump systems for hot water, heating and indeed cooling water, to try and introduce that benefit into the non-domestic side. Quite how you get that across to households ---
Mr Timmins: It is quite a relevant example in the context that we are looking at for heating controls. There are couple of things. Firstly, the best research that we have seen says that 70 per cent of people have said that the decision on their heating system was made by the heating installer. 70 per cent admitted it, so there is probably a greater percentage than that. It makes sense really. If you are going to spend money on somebody to do work on your home they are the person you are going to listen to for advice, so we need to make sure that in the installer network for heating systems and lighting systems and lighting controls, that the installer who deals with the consumer or the person making the payment is an ambassador for energy-saving technologies. That is a process of education and a process of validation. It is giving them the tools whereby they can sell something that might be more expensive but they can show the benefits to the customer and that it is independently validated. That is how between government and industry we can probably work to deliver something like that. You mentioned the pumps and systems are a complex area. We have had a big debate about heating systems with the European Commission and, as a consequence of that, we are hoping there will be the introduction of a label that will allow the installer to label the efficiency of the system that has been installed in relation to the existing components. You could also then extend that to giving the installers a tool that they can go out to people and say, "Look, this shows that if you do this with the pumps, if you install these heating controls, if you do some balancing of the system and put water treatment in, all the things that can help with efficiency, that is the end improvement to you. There are thousands of boilers being replaced every day. There are thousands of interactions between consumers and installers, and those are the things that we need to make use of because we cannot expect that every day people are going to go off and look at a website or get some advice about what they should do to improve energy efficiency. We know these interactions are happening, so those are the opportunities, and that is where I think the heating and hot water taskforce that Howard mentioned, which is not something we have set up but it is something we have been very involved in, is a real opportunity for us to sit down and talk about these technologies and say what is the real potential, how can we do that, what are the capacity issues, what are the training issues. It is about government and industry just talking about what needs to happen and how it can be done. It is not industry reacting to something that is being proposed, where I think it does get a bit oppositional because we have our own interests and government has already set something out that it wants to do. We want to try and avoid that and deal with these technologies as something that needs to happens, what are the barriers, what are the solutions, and what can we both do to make that happen.
Dr Porter: I think there is always a role for the regulatory backbone of doing this. Whether it is a heating installer, a lighting installer or somebody installing something in a high-voltage network, if there is appropriate regulation behind it then that stimulates the market to make sure that the inappropriate stuff is not put in. Back to the installer example, it is about educating the installer about what they have to do but once the regulation is in place then the training and the skills have to follow to make sure that that professional operator actually understands the detail of what can be done. Back to this partnership issue, I think one of the key things that I have discovered in many years of working with industry and government is we have to accept that the civil servants who are making very important decisions or recommendations to ministers are not experts in all these technology areas; nobody can be. I think we accept that it is our role to help to - I would not say educate, that is the wrong word - to inform civil servants making decisions on the technologies available, what the differences are, but then there needs to be a quid pro quo, there needs to be a reasonable response to the opportunities out there, and I think that really is the way forward. We can discuss all day the options of how we can do it but it is that partnership approach that we could set up within the heating area that can be expanded to many other areas that we are not covering today, to really identify where real, cost-effective savings can be made and why is it not happening. It may not be government, it may be somebody else who is causing the problem - but government can provide a little bit of a push or a squeeze or a bit of new regulation that removes that barrier and allows that to happen.
Paddy Tipping: I do want to talk about smart meters, which has come up during the discussion quite a lot as an area where we need to talk to officials about the technologies. Alan Whitehead?
Q442 Dr Whitehead: You have mentioned smart meters on several occasions in our discussions so far but how important do you think the roll-out of a universal system of smart meters and the development of a smart grid will be in terms of UK CO2 emissions?
Mr Aldridge: I think that is absolutely essential. It is also a very good example of where government has brought the parties together. We talked previously about how government can interact. For many years the supply side of the industry has costed out what would have been the benefit to them of smart meters. The demand side, which includes us, have worked that out, but until recently the two of them had never come together. The fact we have been able to bring that together, the Government has done that and, if you like, the net present value of that investment to the UK is positive, whatever model you use, so that is a good example of bringing the factions together and actually creating a policy. We think it is absolutely vital across all of the market, not just non-domestic but domestic as well, because getting information into the hands of people who can manage it is extremely valuable. We do have a bit of an issue in the sense that where you manage energy, particularly in a hospital or a university, is not the place where the meter is sited. The meter might be in a pit on the boundary or it might be in a plant room on the roof locked away in a control panel. What we need to do is to deliver that information to people in a format they can use in the location that they use it. This is this whole issue of automatic meter reading and automatic monitoring and targeting to be able to do that. I think that approach is as applicable on the domestic side as it is on the non-domestic, which is why we are not totally in agreement with the mandatory real-time displays because we think there is a variety of ways in which information can be delivered to people and different people want to use it in different ways, so we do not want to see the mandatory RTV. We would like to see a mandatory "there must be a method of delivery" whatever that method is.
Dr Porter: We have been very much involved in the development of policy on smart metering systems, and I think the first thing is certainty (and soon) on what the structures of the market is absolutely vital. To answer your question more directly, how important is it, personally I believe and BEAMA certainly believes that it is absolutely vital. It is not going to be a panacea. As soon as you have a smart meter the world does not suddenly change, but once you have that system, and it is really putting in place the connection between the utility and the customer, which occasionally is not the best in terms of how that operates, and giving information to the consumer or a business, but in this case the consumer, which I think can help them make their decisions. I also agree with Alan that having a single way of displaying that information probably is not the best way because there are very different types of consumers who to a larger or lesser extent are interested in climate change or saving money or who are on payment systems, and I think that there should be some regulations or a requirement on the utility companies to actually provide that feedback but allow them to innovate in how that goes forward. I think this is at the centre of how we move forward beyond smart metering. I mentioned earlier we imagine that smart metering will provide a home area network to buildings to allow a reading to be picked up away from the meter. I think there are many people thinking if you have that, what else can you do with it? We have been talking to people who make ventilation equipment, boilers, white goods, appliances and any renewables you put on that building, and there is an ability then to connect the different energy uses within the building and provide some energy management. It will not be the same energy management as Alan talks about in a hospital, clearly; there is a bit of a difference. We said go for winners we know about. I think once we get into this area the products probably are not there yet because we have not had the mass roll-out, but there are the opportunities we see now with large companies coming into this area - the Nokias and Googles of the world - who are very interested in how to use that connectivity to help consumers move in that area. We have had discussions with BT, with Google, with Nokia, and they are all very interested in how they can use their very strong consumer focus/consumer relationship, along with the utility perhaps, to actually use this information and use the technology once it is out there. So it is not a simple question and a simple answer but absolutely key we feel to integrating stuff. It very much depends how that information and that system will be used by the utilities. That is the key and I do not think we know that yet.
Q443 Dr Whitehead: Is there not then a potential problem arising from those statements which is that on the one hand it is necessary to roll it out quickly but it is also necessary to get, as you have already mentioned, customer acceptance of doing it. There are a number of applications which could be attached to smart meters but a decision has to presumably be made about the minimum functionality of what the meter is?
Dr Porter: Indeed.
Q444 Dr Whitehead: There is one go at that ---
Dr Porter: There is.
Q445 Dr Whitehead: What level of functionality do you see is about the right entry level for this? Is it reasonably literate meters, reasonably clever meters, very clever meters?
Dr Porter: I think the
level of functionality that was in the Government's consultation, or which we
are waiting the answer to, is about the right level. I work a lot in
Q446 Dr Whitehead: You have stated in your evidence, in parallel with that, that a fundamental restructuring of the grid for a number of the reasons you have already described is necessary. How do you think that can work and is the five-year review cycle we presently have sufficient to enable that to take place?
Dr Porter: I suspect not. I think that the five-year cycle is a very rigid cycle and I think it is arguable that technology has moved on and will move on at a quicker pace than a rigid five-year cycle. I believe there are some flexibilities within the system. It is not my particular area of expertise, but I think we have to recognise that within that regulated distribution industry, where it is regulated, there does need to be more flexibility to allow for the fact if there is a technology that comes forward in two years' time, does it have to wait for the next review in order to get the funding cycles for the distribution companies to invest in that technology? Given the situation we are in, I suspect that is not an appropriate situation. That is not to say that the whole system should be thrown out completely, but I think some adjustments should be made to recognise that it can change over that five-year cycle to look at innovations.
Mr Aldridge: Can I pass two comments going back to your base question. We think that over a period of time manufacturers will develop, in effect, a hardware platform for meters and a software platform. What that means is that just like mobile phones, manufacturers make a phone that works anywhere in the world, in a sense, we are going to be moving to that same situation so whilst I think it is very important to set the functionality, because we have all got to work with it, I am not quite believing that it is a once-and-for-all decision. Certainly a lot of the software could be upgraded in that time to adjust to different circumstances - if there are more tariff bands for example than the initial design. I think the manufacturers will have some ways around that to deal with it. The second point I would like to make is that in the consideration as to the market model for this, which I think has been before the Committee before, which is the notion of having a centralised method or a competitive method of roll-out, to be frank, we are very strongly in the competitive camp, which is not the favoured approach at the moment, and the reason is that we believe that will bring competition and it will bring innovation. As Howard said, if something comes up in two years instead of five you have got the opportunity to deal with it and develop it to the benefit of consumers and to the benefit of the market. So we are pressing DECC to consider again the competitive aspect. We have asked them to make a number of different assumptions about how that works, because we do not think the assumptions are necessarily right, and just see if that changes the economics. They have not come back to us yet but we are hopeful they will soon.
Dr Porter: There is
probably a difference between the non-domestic and the domestic area here and
the recognition that because of our very liberalised system in the
Paddy Tipping: We have talked a bit about consumers and we will have a couple of questions on consumers and then we will finish. Mike?
Q447 Mr Weir: You talked earlier about muddled messages but if we are going to move to a low-carbon economy there has to be a step change not just for government and business but for consumers. The HSBC Climate Confidence Monitor found recently that people think that climate change is probably irreversible and there is not much we can do about it. How do we change attitudes and get people to take action to meet the targets that are being set, when they eventually are, which are going to be very challenging?
Dr Porter: A big question that!
Mr Aldridge: We run lots of conferences and we often get this concerned citizen in the audience who asks four or five questions on this subject and the response we give is, "Your premise is that this is not good for business; our premise is that it is good for business."
Q448 Mr Weir: But that is not the question. The individual citizen is going to have to take action, not just business, and given there is going to be substantial change in how we live our lives if we are going to meet 80 per cent by 2050 or whatever, how do we get that message across to the consumer?
Mr Aldridge: I will go back a little to what I said. There are a lot of companies that promote their energy-saving techniques and their responsibilities through the workforce by helping them in their homes. There is a number of companies that do that so they promote things for saving in the home on the basis that that culture and behaviour will be brought back into the workplace. It is not complete answer but it is one of the ways that industry is leading on this.
Mr Timmins: There is quite a lot in what Alan said because I think the industry does get it and we recognise that the carbon targets are setting the framework for the market in the future and therefore the products and services provided are going to be ones that actually help people to reduce their energy, whether they know it or not. If there is a limited choice of products and you can only buy the most efficient ones, you are improving your efficiency. In terms of getting individuals to change themselves, I think we need to be a bit more focused and a bit more consistent in terms of the approaches we take. It is not easy. It is three things. First, they have to see that there is a value in doing it. Whether that is in relation to the environment or in relation to their pocket or just in relation to what they get is going to be better than what they have got already. They have to perceive that it is easy to do. They have to see that there is the right social context; they have to see that other people are doing it, that government believes in it and the public sector is taking action in the right way. It is a different combination of those for different products but it always comes back to these. If we fail on any of those points, from anyone's own personal opinion about deciding to do something, if you do not think it is of value ,you are not going to do it; if you do not think it is easy to do, you are probably not going to do it; and if you do not think anyone else is doing it, it is quite likely that you are going to think it is not worth doing it for me either. We have to be consistent and try and simplify it. There is an awful lot of complicated talk about behaviour change. It comes down to those and there is a lot inside those. If we start thinking in those terms of are we making sure with all of the things that we are trying to promote and all the messages that we are getting, that we are getting those aspects right, that is how I think we can succeed.
Dr Porter: I think it is making sure that those messages come across from all the agencies that a consumer talks to. I think there is a great deal of confusion even amongst consumers who believe they want to do something, having believed the press, shall we say, that there is a problem here. They are actually doing some action and getting wrong advice from local authorities, and going through the utility is not always the easiest thing in terms of the processes, but it is making it easier. We referred earlier to the street-by-street approach. There are a number of problems in that approach, but I think the philosophy that an organised, systematic approach that goes along the road, along the street, along the close, offering the same advice, the same offers and the same approach to a number of consumers should certainly be tried. I am not saying now that it will be a roaring success but I think there is enough in that approach that could actually deliver a better, more co-ordinated roll-out than the current system. I think it should be tried.
Paddy Tipping: That is a positive note to finish on. Can I thank you, Howard, Colin and Alan, very much. I am conscious that I stopped both Colin and Howard rather abruptly at a couple of points. On the Tube home or back to work, if you reflect on anything, "I should have told them that. I had the opportunity to do that," just drop us a note because it is still not too late to have your say, as it were. Thank you all very much indeed and thank you to colleagues for sticking with us.