House of Commons - The work of the Committee in 2008-09

The work of the Committee in 2008-09 - Environmental Audit Committee Contents

Annex 3

Government Response Table[62]

Carbon capture and storage[63]

Conclusion/Recommendation Government Response

1. We welcome the competition on post-combustion CCS from coal and recognise that it will make an important contribution. However, we feel it would aid the development of CCS if the Government were to extend its support to a programme of demonstration projects, including pre-combustion technology. Furthermore, the Government must view its competition as only one part of a wider strategy; it must continue to support other CCS projects including the development and integration of the individual components and new CCS technologies. While undoubtedly valuable, the competition must not detract effort and resources from other work on CCS within the UK. The timely development of a range of CCS technologies would also give the UK a clear competitive advantage on the global stage. (Paragraph 8) The Government agrees with the Committee that the timely and effective development of CCS technologies requires a strategic approach across the whole innovation chain, from research and development through to commercial-scale demonstration of a number of CCS technologies, including pre and post combustion technologies.
We want to see CCS proven for wider deployment by 2020. Each step of the CCS technology chain —capture, transport and storage—has separately already been shown to work. But there are significant technical and cost challenges to be met before CCS can be widely deployed. Commercial-scale demonstration is the next key step and the costs and risks of CCS demonstration mean that Government intervention is necessary if projects are to proceed in the timescale required to meet climate change objectives.
In recognition of this, the Chancellor announced in Budget 2009 that the Government intends to put in place a funding mechanism to support up to four CCS demonstration projects, including both pre- and post-combustion coal projects. This mechanism will raise funding from electricity suppliers to support the selected projects and will require primary legislation. The Draft Legislative Programme[64] published on 29 June for consultation contains proposals for an Energy Bill for the fifth session of Parliament that would enable this to be taken forward. As part of the process of developing this mechanism, including the administrative arrangements and payment mechanisms, we explore a number of proposals and issues in the consultation on 'A Framework for the Development of Clean Coal', published on 17 June.
The Chancellor also confirmed the Government's intention to proceed with the CCS demonstration competition that was launched in 2007, subject to receiving suitable bids and final funding approval in subsequent spending reviews. As the first step, the Budget announced the Government's intention to provide up to £90m public funds for detailed design and development work (FEED studies). These studies are expected to reduce the level of risk and give greater clarity on costs. The knowledge generated from the studies will be made available to promote global understanding of CCS. Once complete, the demonstration project is expected to be one of the first large scale demonstrations of CCS anywhere in the world and should add significantly to global experience of this technology.
In addition to our support for commercial-scale CCS demonstration, we continue to support the development of a wide variety of CCS components through our support for research, development and demonstration via the Technology Strategy Board (TSB), the Energy Technologies Institute (ETI) and the Environmental Transformation Fund (ETF). For example:

The Technology Strategy Board confirmed its commitment to Carbon Abatement Technologies, including CCS, in its 2008 strategy for Energy Generation and Supply, and has a portfolio of existing projects on carbon abatement technologies with a total project value of about £14.5M.
DECC's Environmental Transformation Fund (ETF) includes support for CCS through the Carbon Abatement Technologies Demonstration Programme. To date some £2.2 million has been committed to one project for the demonstration of a 40MWt Oxyfuel combustion system.
The Energy Technologies Institute published its technology strategy in January 2009. The ETI has already launched three calls in the areas of offshore wind, marine and distributed energy technologies and is now considering its plans for CCS including next generation capture technologies, modelling and storage.
On 15th June, a £15m competition offering funding for applied research, development and demonstration of Carbon Abatement Technologies was launched jointly by the Technology Strategy Board, Northern Way and the Department of Energy and Climate Change ETF[65]. By working together we maximise the benefits of public expenditure and provide a simple single route to funding for these technologies.

2. We are extremely disappointed by the lack of progress on CCS. (Paragraph 9)
3. It is essential for the Government to give a far higher priority to the development of CCS. It must communicate and follow a clearer and more urgent strategy in order to speed this development and provide a stronger signal to industry. The indecision that has afflicted the development of CCS up to now must end; any further delay will be extremely damaging environmentally and will mean that the chance to gain a competitive advantage is being squandered. (Paragraph 10)
Our approach to CCS in the UK must set an example globally and we outlined ambitious proposals to drive the development and deployment of clean coal on 23 April, which were set out in more detail on 17 June in a formal consultation document 'A Framework for the Development of Clean Coal'.
In parallel, we are developing a strategic framework that will enable the timely wider deployment CCS. For example, under the Energy Act 2008 the UK is one of the first countries in the world to have a comprehensive regulatory regime for the storage of carbon dioxide in geological formations while, on 23 April, we confirmed that all new gas, oil, biomass and coal power stations at or above 300MWe will have to demonstrate that they are Carbon Capture Ready. On 17 June we published reports exploring the value of coal carbon abatement technologies to UK industry and looking at issues to be considered in developing a regulatory framework for CCS transportation infrastructure.
Later in 2009, we plan to publish a CCS strategy that will consider: international development of CCS, including in the EU; UK business opportunities and jobs; infrastructure development; skills; capacity building and other supply chain constraints; and technology development.
The UK is leading international efforts on CCS through active engagement in multilateral fora.

Within the EU, we were instrumental in reaching agreement in December 2008 to allow use of 300m free allowances from the New Entrant Reserve of Phase 3 of the EU ETS to support the EU's ambition to have up to 12 CCS demonstration projects operational by 2015. Further EU support was agreed in April 2009 through the European Economic Plan for Recovery which included €1.05 billion for CCS projects in 7 Member States, including the UK.
We have played a key role in the development and delivery of the 2005 EU-China Near Zero Emissions Coal (NZEC) agreement to demonstrate CCS in China. A report from the first phase of the project will be launched at a conference in Beijing on 28-29 October 2009. The UK is working with the European Commission and China to develop the next phases, aiming for demonstration by 2015.
We were the first country to become a Foundation Member of the Global Carbon Capture and Storage Institute set up by the Australian Government.
We are members of the North Sea Basin Task Force, which published an initial study on North Sea carbon dioxide networks last year with further work announced by the UK and Norway on 28 May[66].
On 13 October 2009, the UK will co-host with Norway the Carbon Sequestration Leadership Forum (CSLF) Ministerial conference in London, where its 22 member countries will be asked to agree recommendations on the commercialisation of CCS ahead of the UNFCCC conference in Copenhagen.
We were instrumental in securing the G8's 2008 commitment to an ambition for 20 large-scale CCS demonstration projects to be launched globally by 2010 and at this year's G8 Summit this was reiterated with the need to encourage the greater involvement of developing countries and identify sources of financing/funding.

We will continue to actively lobby to ensure that CCS is properly treated in other key global frameworks such as the Clean Development Mechanism and the United Nations Framework Convention on Climate Change (UNFCCC) for reducing carbon dioxide emissions post-2012.

4. Unless the Government is able to show there is sufficient storage capacity there must be some question about the long-term viability of CCS. (Paragraph 13) The Energy Act 2008 includes one of the first legal regimes in the world to regulate the long-term storage of carbon dioxide deep underground and licensing requirements.
Previous work funded by Government and undertaken by the British Geological Survey (BGS) gives a good level of confidence about the storage capacity of the British Isles[67]. This study estimated that the total quantified storage capacity exceeds 7.5 Gt and may exceed 22 Gt (this range is due to uncertainty on saline aquifer capacity). The lower end of the range relates to already well characterised storage sites and should be sufficient to meet UK needs for many decades to come. Additionally, we might expect closer geological analysis of aquifers to validate further viable storage capacity of the UK within the range cited above. Importantly, some saline aquifers have already been proven suitable for storage of carbon dioxide.
Further studies have also been carried out by consortia in Scotland, Ireland and the Regional Development Agencies (RDAs). The study "Opportunities for CO₂ storage around Scotland" shows that from a resource of more than 80 saline aquifers studied, ten have been identified with a total potential CO₂ capacity in the range 4,600 to 46,000 million tonnes—a capability to store more than 200 years of Scotland's CO₂ output from its major fixed industrial sources[68]. The study "Assessment of potential for geological storage of CO₂ for Ireland" estimated that using the techno-economic resource pyramid recommended by the international Carbon Sequestration Leadership Forum (CSLF, 2007), that the island has a total storage capacity of 93,115 Mt[69]. The ETI are also considering further work in this area.

5. The possibility of CCS should not be used as a fig leaf to give unabated coal-fired power stations an appearance of environmental acceptability. (Paragraph 14)
6. The current momentum for new coal-fired plant is not taking adequate account of its environmental impact and the challenges of developing and deploying CCS technology. (Paragraph 15)
7. Replacing old coal-fired power stations with new ones, rather than using alternative energy sources, locks Britain in to a high level of emissions for many years to come. The increased efficiency of new plants is nowhere near enough to make unabated coal an environmentally acceptable choice. Any alternative form of electricity generation would provide significantly more substantial emissions reductions. (Paragraph 16)
9. The Government argues that coal has a role to play in meeting energy demand. If this is true then the Government must prioritise the development of commercial scale CCS. However, the argument that coal is essential to guarantee energy supply must not be abused. Unless there is a dramatic technological development, coal should be seen as the last resort, even with the promise of CCS. We are concerned that the Government is considering opening the door to a new era of coal-fired generation because it is the easy option, and one that generators will be only too willing to take. Such an approach is extremely dangerous both environmentally and economically when there is no certainty over when, or if, CCS will be commercially viable. (Paragraph 18)
The Government agrees that we cannot continue with business as usual, building unabated coal fired power stations. That is why we have, since the Committee's report, put forward strong regulatory conditions, the most environmentally ambitious in the world (see below).
Alongside the commitment to up to 4 CCS demonstration projects, we think this puts Britain at the forefront of work on CCS. We believe it is necessary, domestically and globally, to drive the development of CCS. In the UK we need the trinity of low carbon fuels: renewables, nuclear and low carbon fossil fuels to meet our energy needs and internationally, there can be no solution to the problem of climate change without a solution to the issue of coal.
Coal power stations play a vital role in providing the UK with reliable electricity supplies: they provide a third of our electricity; can be operated flexibly in response to variations in demand from consumers and supply from other generators, which will become increasingly important as we see growth in wind generation; and they add diversity to our energy mix, in particular providing an alternative to gas.
There are abundant reserves available in many countries, which can be easily extracted, transported and stored (albeit at some cost to the local environment); while coal power stations offer reliable and controllable output. As a result, the IEA predicts significant growth in the amount of energy generated from coal globally over the next two decades.
This is not sustainable, on a high carbon basis, and any credible strategy for tackling climate change must actively set out to address the challenge of reconciling nations' energy security needs with the urgent need to tackle global carbon emissions.

10. The Government should make clear to industry that it will not permit the operation of unabated coal-fired power stations in the longer-term. The Government must take more urgent and ambitious steps to incentivise the development and retrofitting of CCS and, equally importantly, to prevent the prolonged operation of unabated coal-fired power stations. (Paragraph 19)
11. There is no guarantee that a plant approved on the basis that it would be CCS ready will actually be willing or able to retrofit CCS once the technology has been demonstrated on a commercial scale. We believe that planning permission granted on the condition of CCS readiness is meaningless unless the Government places a requirement on all power generators to retrofit CCS as soon as it is available and to shut down any power stations which are not then fitted with CCS. Such a requirement would need to be supported by continued investment in research and development and action to ensure that CCS becomes commercially viable. (Paragraph 22)
12. With even the Energy Minister recognising that there is no guarantee the carbon price will reach a sufficient level to incentivise the deployment of CCS, it is evident that the Government will need to accompany its faith in the carbon market with measures to mandate the installation of CCS technologies. (Paragraph 26)
15. The Government cannot allow the prolonged operation of unabated coal stations; doing so will make it very unlikely the Government will meet its own carbon reduction targets. The Government should set a date by which all power stations will Carbon capture and storage have to have emissions per unit of power generated below a certain limit (set in terms of kg CO₂/MWh) or face closure. This limit should be based on capturing at least 90% of carbon emissions. By setting such a deadline and making its intentions clear a strong signal will be sent to the power generation industry about the future of coal and the importance of CCS. (Paragraph 32)
As discussed above, we accept that we need to step up efforts to drive the development and deployment of CCS and that there needs to be a particular focus on coal power generation. So, in April 2009 the Government set out proposals for an ambitious new financial and regulatory framework for the development of clean coal, followed by publication of a formal consultation on 17 June. The consultation seeks views on proposals to drive the development of clean coal by:

Providing financial support for up to four commercial-scale CCS demonstrations in Britain covering a range of CCS technologies.
Requiring any new coal power station in England and Wales to demonstrate CCS from day one on a defined part of its capacity: at least 300MW net (around 400MW gross).
Requiring new coal power stations to retrofit CCS to their full capacity within five years of CCS being independently judged technically and economically proven, to reinforce the expectation indicated by the EU ETS that CCS will need to be retrofitted in the 2020s. We will plan on the basis that CCS will be proven by 2020. Further new coal power stations would then be required to install CCS on the full generating capacity from the outset.
Preparing for the possibility that CCS will not become proven as early as we expect. Measures could include an annual cap on individual power stations' emissions, a limit on running hours or an emissions performance standard that would limit the amount of CO2 that could be emitted per unit of electricity generated.

We are exploring how an emissions performance standard could support the measures outlined above.

8. It is true that, in theory, the EU ETS cap should keep emissions within a certain limit. However, the Government is wrong to rely on the EU ETS cap to excuse the increase in emissions that would derive from the new unabated coal-fired power stations. Emissions included in the EU ETS do not disappear—they must be accounted for somewhere. The EU ETS is a mechanism designed to reduce emissions; using it as a cover for choosing high emissions technology goes against the purpose of the scheme. Furthermore, it completely ignores the risks to Britain's economic position if the carbon price rises substantially in Phase Three of the EU ETS. The Government should prioritise emissions reductions within the UK as soon as possible (Paragraph 17).
13. We cannot rely solely on the carbon price, either now or in the future, to ensure the implementation of CCS technology. There is a real risk that the EU ETS will not deliver a carbon price that will make CCS cost effective. (Paragraph 29)
14. In our Report on the 2007 Pre-Budget Report we recommended that the Government 'introduce some form of financial mechanism for incentivising CCS power plants over conventional power stations', such as a feed-in tariff for CCS plants, or contracts which guarantee funding for the difference in costs between CCS and conventional plants. The Government response to our Report failed to discuss the merits of such measures, instead reiterated the role of the carbon price. We fear that the carbon price will not deliver the level of incentive that is needed in the short-to medium-term. We urge the Government to develop and bring forward additional mechanisms that will provide an incentive for CCS. (Paragraph 32)
We agree that the costs and risks of CCS demonstration mean that Government intervention is necessary if projects are to proceed in the timescale required to meet climate change objectives. For this reason, we announced plans in Budget 2009 to introduce a new financial mechanism to fund up to four CCS demonstration projects in the UK. The Draft Legislative Programme[70] published on 29 June for consultation contains proposals for an Energy Bill for the fifth session of Parliament that would enable this to be taken forward. We are also working at EU level to stimulate investment in CCS demonstration within Europe.
Assuming that a series of successful demonstration projects reduce the costs and risks of CCS, we might expect the carbon price under the EU ETS to start to drive CCS deployment on coal power stations in the 2020s. However, the independent Committee on Climate Change has argued that uncertainty over future carbon prices means that investment in new coal power stations might go ahead without a clear acceptance of the need for future CCS installation. They suggest there is a need to establish a clearer expectation that CCS would need to be retrofitted in the early 2020s and the proposals in our consultation 'A framework for the development of clean coal' aim to deliver this.
Ultimately, if CCS is to fulfil its potential to make a significant contribution to combating climate change, fossil fuel power stations with CCS will need to be able to compete with other low-carbon technologies. This would need technical and commercial viability to be proven so that investors can choose CCS as one of a suite of low carbon options. However, again as with other technologies, whether, and for how long, any support framework in addition to the carbon price will be required cannot be determined at this stage.
The Government believes that publicly supported and timely demonstration of CCS technology at commercial scale within the next decade, in the UK and globally, will enable wide-scale deployment of CCS through the 2020s as part of the decarbonisation of the power sector under the EU ETS.

Vehicle Excise Duty as an environmental tax[71]

Conclusion/Recommendation Government Response

1. We agree with the Exchequer Secretary: the rebanding of cars bought since 2001 is not retrospective taxation. The only retrospective element in these changes is that the new rates will apply to cars that have already been bought. In itself there is nothing intrinsically unfair or unusual about this. Variable VED was first introduced in 1999 and the creation of new bands, with the single exception of Band G, has always been applied to cars already purchased. (Paragraph 12) The Government welcomes the Committee's report on Vehicle Excise Duty as an Environmental Tax. The Committee continues to provide a constructive focus on environmental issues.
The Government welcomes the acknowledgement from the Committee that the 2008 Budget changes to Vehicles Excise Duty (VED) are not retrospective. As confirmed in the Pre-Budget Report, the changes will only come into effect from April 2009 and the duty will not apply to previous tax years.
The aim of these reforms is to ensure that when people choose a lower-carbon car they will be rewarded financially. As the Committee notes, it is important that the environmental signal within VED applies in the second-hand market—where around three quarters of purchases are made each year—as well as in the new car market.
The CO₂-based VED system has been designed in order to respond to changes in fuel efficiency in vehicle manufacture. With forthcoming EU targets on cutting average new car emissions, it is important that the UK maintains the flexibility to respond to these changes through the VED system. However, if every time that new VED bands were introduced they could only be applied to new cars, the Government could potentially end up introducing multiple systems which would greatly undermine the clarity and consistency of the overall regime, as well as creating administrative burdens for business and the Driver and Vehicle Licensing Agency (DVLA).
For these reasons, and others identified by the Committee, the principle that VED changes should apply to existing cars remains sound.
However, in order to reduce pressures on motorists during the current economic downturn, the Government recognises that it is no longer appropriate to take forward the major changes to taxes announced at Budget in April 2009. Therefore, in the Pre-Budget Report 2008, the Government announced that there will be no significant rate changes in CO₂-based VED until 2010. As a result of this announcement:

in 2009, no driver will pay more than £5 extra in 2009;
in 2010, no driver will pay more than £30 extra, and many in the lower bands will see a £30 tax cut. A majority of drivers will pay the same or less than in 2009.

The Pre-Budget Report also confirmed the introduction of differential first-year rates of VED in 2010, to strengthen the signal to consumers at the point of purchase that they can save money by buying a lower emitting new car.

2. We are not aware of any hard evidence about the numbers of those affected by a doubling of VED rates who are on lower incomes. We recommend the Treasury publish a detailed analysis of the financial effects of VED on different income distributions so that the impact of any future changes to VED can be more easily understood. (Paragraphs 20, 22) In 1997, there was only one VED band, meaning that all car owners were taxed the same amount, regardless of the type of car that they drove. By introducing and then reforming graduated VED since 2001, the Government has made the system less regressive, as well as ensuring that the most polluting cars pay more than the least polluting.
The Government does not possess comprehensive evidence linking specific levels of household income to the VED rate, in the way that is available for other taxes. However, National Travel Survey (NTS) data strongly suggests that low-income households are likely to be either unaffected by, or benefit from VED changes, whereas high-income households are more likely to face tax increases. The Pre-Budget Report announced that these tax increases will be a maximum of £30 in any one year.
Table 1: National Travel Survey data on household car availability by household income quintile: 2007. (Analysis by Department for Transport)

The data in this table confirms that low-income households are less likely to own a car. Indeed over half of the households in the bottom income quintile do not own a car at all.
Furthermore, low-income households—if they do own cars—are more likely to own cars registered before 2001 than high-income households. Around one third of the total UK car fleet is made up of pre-2001 cars, and these are not subject to the CO₂-based VED regime, as there is no consistent information available in relation to their CO₂ emissions. NTS data shows that over 30 per cent of cars owned by households in the lowest income quintile are over 10 years old, compared with only 15 per cent of cars owned by households in the highest income quintile.
The Pre-Budget Report announced a £5 increase in both the lower and higher rates for pre-2001 cars, in line with the changes announced to main VED rates. It also announced that in 2010, the higher rate will increase by £15 and the lower rate will be frozen. As a result of these changes, none of these cars will pay more in real terms in 2010, than in 1997.
Of cars that have been registered after 2001 and are therefore subject to the CO₂-based VED regime, NTS data also suggests that low-income households are generally more likely to own cars in the lower VED bands, and high-income households are more likely to own cars in the higher VED bands. Over 60 per cent of cars owned by households in the lowest income quintile are in the current bands B to D. The data in Table 2 confirms that the overall correlation between car cost and VED band is extremely strong: in general, cars in higher VED bands are likely to cost more.

Table 2: Average cost of new cars within VED bands, from data provided by JATO Dynamics, 2007
2008-9 band
Sales-weighted average car price[72] in 2007

Band B
Band C
Band D
Band E
Band F
Band G
£11,000
£12,000
£16,000
£18,000
£24,000
£42,000

3. We welcome the fact that those on higher rate disability benefit are exempt from paying VED, and can have their cars paid for them through the Motability scheme. However, we are concerned that this will leave many people, who do not qualify for the higher rate disability benefit, still having to pay VED; many of this group may need a larger vehicle to accommodate wheelchairs or medical equipment. We recommend that the Treasury urgently reviews the impacts of VED changes on disabled people and their carers, and takes steps to ensure they are not financially disadvantaged. In particular, we recommend the Treasury considers extending the exemption on paying VED to all recipients of disability benefit. (Paragraph 23) The Government provides a package of measures that help support disabled people, including benefits, tax credits and other disability-related financial support. Disability Living Allowance (DLA), a main source of direct financial support provided to disabled people, is designed to take into consideration additional living costs and is available to adults and children who need help getting around and/or have care needs because of severe illness or disability. The care component of DLA is available at three rates and the mobility component at two rates—both are awarded according to the level of need. The higher rate mobility component of DLA is targeted on those who are unable or virtually unable to walk.
Those on the higher rate mobility component of DLA and those receiving the War Pensioners Mobility Supplement can claim an exemption from paying VED. As of June 2008, over 1.1 million disabled people were claiming the exemption. An exemption from VED is also available for vehicles in the Disabled Passenger Vehicle taxation class, used by organisations concerned with the care of mentally or physically disabled people. The exemptions are deliberately targeted at those with disabilities that severely impair mobility. To extend the VED exemptions to further groups would include those who are not mobility impaired.
Receipt of the higher rate mobility component of DLA and the War Pensioners Mobility Supplement also confers eligibility to the Motability scheme, which provides help in buying or leasing a car, and associated assistance such as the helping to meet the costs of vehicle adaptations.
The Government also provides other support to disabled people, such as VAT relief. The leasing or hiring of certain equipment and vehicles may qualify for VAT relief, and other goods may also qualify if the item has been designed or adapted solely for a disabled person's use. This includes some medical appliances, certain adjustable beds and hoists and some adapted vehicles.
The local authorities-administered Blue Badge scheme also provides a range of parking benefits for disabled people with severe walking difficulties who travel either as drivers or as passengers. Disabled people are also entitled to a discount of up to a third on rail travel, and concessionary bus fares.
The Government believes its current approach to the provision of assistance to disabled people—including the exemption from VED for the mobility impaired—is the fairest way to go about offering targeted support to those that are in greatest need of it.

4. We recommend that VED bands and carbon emissions should be made clearly visible to prospective buyers of second-hand cars. (Paragraph 27) The labelling scheme for new cars was launched by the Government in 2005, in conjunction with the Society of Motor Manufacturers and Traders (SMMT) and the Low Carbon Vehicle Partnership (LowCVP). Participation in the scheme by car showrooms has steadily increased, to the extent that 91 per cent of showrooms now use the labels on their vehicles. The labels are designed to provide information—including on overall fuel consumption, VED rates and CO₂ emissions—to consumers in as clear, consistent and useful a way as possible, and their introduction was welcomed by the King Review.
The scheme supports the UK's implementation of the EU directive on car labelling, under which manufacturers are required to provide clear information on fuel consumption and CO₂ emission figures for new vehicles at the point of sale.
The Department for Transport and the Treasury are actively looking at the current label design in the context of reforms to VED, along with SMMT and LowCVP. This work is being taken forward via the LowCVP Passenger Car Working Group. The Department for Transport is currently working with industry to ensure that any future rollout of the label into the second-hand market is effective and useful for consumers.

5. We support the widening of differentials between VED bands for existing cars. It makes perfect sense to do this for existing cars, not just new cars, given that this is a way of influencing buyers of second-hand cars towards choosing models with lower emissions. This is enormously important, given that three-quarters of all cars bought each year are second-hand. (Paragraph 29)
6. We were disappointed that the Treasury had not modelled what impact the rebanding of existing cars will have on carbon emissions. Presumably this means the Treasury does not have any idea of what levels of VED will either persuade people to trade in their existing cars sooner than they would otherwise, or choose a more efficient model when they next come to buy a second-hand car. This is particularly surprising given the Exchequer Secretary told us the changes to VED in the Budget were primarily made for environmental purposes. We recommend the Treasury urgently carry out and publish research on the impacts that these and other potential changes to VED would make to the second-hand car market, and resultant carbon emissions. (Paragraph 30)
The Government welcomes the Committee's support for increasing the number of VED bands. The number of bands was increased in order to improve the financial incentive on motorists to purchase the cleanest vehicles within their preferred class of car. Under the current bands, around 30 per cent of cars in graduated VED fall into just one band, current Band C, which under these reforms will be split into three separate bands, allowing customers to make a financial gain of £30 in 2010 by shifting to a more fuel-efficient version of their preferred car, where previously they might have paid the same VED rate.
The Government has modelled as much of the carbon impact of the Budget 2008 changes as is possible given the data available at this point in time. This modelling by HM Revenue and Customs was based upon the results of an econometric study undertaken during 2007 and published in January 2008 by Economics for the Environment Consultancy (EFTEC). Using a large and uniquely detailed data set recording new car purchase decisions of households in the UK, the study analysed how different attributes of a car (including physical appearance, motoring capabilities and purchase and running costs) determine households' new car purchasing decisions.
As the Committee heard in its evidence session, this study only covered impacts in the new car market, and purchases by individuals, rather than companies. It is therefore likely that the actual carbon savings could be different. It is also likely that the level of publicity that these reforms have received will have contributed to far greater consumer awareness about the benefits of choosing a lower-emitting car, with concomitant impact on carbon savings.
However, the Government takes the view that, given the immediate need to reduce greenhouse gas emissions in order to meet environmental objectives, it would have been wrong to wait until further studies are complete before taking forward the restructuring of VED.

7. We recommend that the Treasury urgently reviews and consults on how lower income households could be economically supported to trade in their cars for low emission replacements. In particular, we recommend that the Treasury urgently examines the proposal for a "car scrappage scheme", which would provide payments in return for taking high emission cars off the road. In any scheme that were implemented, it would be important to ensure that high emission vehicles were genuinely scrapped—with as much of their materials recycled as possible—rather than allowed to stay on the road under different ownership, for instance in another country. (Paragraph 38) The Treasury is aware of the French bonus-malus scheme that rewards motorists for trading in their older, more polluting cars for less polluting models. However, it is too soon to be able to tell whether it has been effective in incentivising the purchase of more fuel-efficient cars. The Government has made no commitment to legislate for a similar scheme to be introduced in the UK. Nevertheless, the Government will monitor the results of the French scheme, and other similar schemes, closely.
The Government agrees with the Committee that, with any scheme, it would be imperative to get the structure right, to ensure it was successful in helping to reduce overall emissions. For example, it would be necessary to avoid paying incentives to motorists who were already planning on scrapping their vehicles, creating a deadweight loss.

8. We recommend the Treasury looks again at what more it could do to ensure that the first-year VED rates are prominently displayed before and at point of sale, and not simply incorporated into an "on the road" price. (Paragraph 43)
9. The Treasury must address concerns that the new system of VED will make the efficiency labelling of cars too complicated to impact on the public in practice. We recommend it undertakes research and develops guidance and publicity to inform traders and consumers. (Paragraph 45)
Although some showrooms may present customers with an on the road price that does not include the cost of VED, it should still be clear to buyers what the first-year rate of a vehicle is. In advance of purchase, vehicle buyers are able to look at the VED band and corresponding rate for a particular vehicle on its colour-coded fuel efficiency label, which, as mentioned above, 91 per cent of showrooms are currently displaying. In many showrooms, the exact amount of VED payable will also be included in the paperwork accompanying the car as part of the on the road price.
As was set out above, the Treasury is working with the Low Carbon Vehicle Partnership and other government departments in looking at the current fuel efficiency label design in the context of reforms to VED, to ensure that the labels continue to provide clear and consistent information. This work will of course take into account the introduction of first year rates.
Vehicle buyers are also able to find out about the emissions level and VED rate for particular vehicles using the Vehicle Certification Agency's car fuel data website, which identifies the VED on individual vehicles based on their emissions.
Of course, it may also be in car dealers' interests to make sure that the customer is aware of the amount of first-year rate that applies to a new car. If the first-year rate is low, this will of course be an additional selling point to make to customers. Indeed, results from a survey undertaken by LowCVP indicate that dealers are increasingly likely to refer to the fuel economy label when discussing vehicle options with car buyers. LowCVP found that over 75 per cent of dealers surveyed made use of the label in conversations with customers, while 61 per cent of dealerships made reference to the financial savings illustrated by the label.

10. We recommend the Treasury commission research on the impacts, on purchasing decisions and carbon emissions, of implementing a range of different first-year rates of VED. (Paragraph 47)
11. Unlike other forms of transport, such as aviation, very significant cuts in emissions from cars could be made extremely rapidly, if prospective buyers could be persuaded consistently to choose the most efficient models in each class that are already on the market. That the Government could achieve this without stopping people driving, merely directing their choice of vehicle to the most efficient available, provides a strong argument for market intervention—larger differentials and bigger incentives—that could be robustly conveyed to the public. (Paragraph 48)
12. At the same time, to develop the market for very low emissions cars, we further recommend that the Treasury examine the merits of some kind of "feebate" system, similar to the "bonus/malus" scheme in France, in which levies on high emission cars are accompanied by subsidies on low emission cars. (Paragraph 49)
The Government welcomes the Committee's support for the introduction of differential first-year rates of VED, and the support for the direction of travel taken in VED reform as a whole.
In shaping VED policy, the Treasury models a variety of different possible structures, to assess their impact on business, as well as on income groups, carbon emissions and Government revenues.
When considering proposals for further increases to the differentials between VED bands, it is important to take into account all relevant economic, social and environmental factors, including proportionality and fairness to motorists, and transparency and consistency of signals to motorists and manufacturers. Setting VED rates at levels significantly beyond those announced in Budget 2008, as desired by the Committee, could have disproportionate effects on certain groups of motorists and manufacturers.
The Government believes the differential first-year rates announced at Budget and confirmed in the Pre Budget Report will act as a strong signal to encourage consumers to pick the most environmentally friendly new car in their preferred class. Motorists do not necessarily need to buy a car in a different class of vehicle altogether—for example by switching from a large Multi Person Vehicle to a smaller supermini—in order to take advantage of the lower rates on cleaner cars. Large savings can be made by choosing the vehicle that is environmentally best in the motorist's preferred class, such as the lowest CO₂-emitting Multi Person Vehicle within that class, or by choosing the lowest CO₂-emitting version of a particular model of car.
For example, the lowest emitting version of the Ford Focus currently on the market will fall into the new band C in 2009, while the highest emitting version will fall into new band K. From 2010, motorists buying a brand new car who choose the former version would pay no VED in the first year in 2010, while those choosing the latter would pay £550 of VED in the first year. Similar differentials in the emission levels between different versions of car models exist among other vehicles.
As the Exchequer Secretary pointed out in evidence to the Committee, the Government believes that the right approach is to make gradual changes to the structure of VED rates and thresholds. This will allow motorists to get used to the recent changes, and for the Government to be able to assess the change in purchasing behaviour that takes place as a result of the reforms. The Government keeps all taxes under review, and maintains the option to alter the VED structure further in the future in order to meet its environmental objectives.

13. The Treasury should have taken greater care to explain that the new VED bands would apply to all vehicles registered on or after March 1 2001. If the point of green taxes is to change behaviour, they need to be properly publicised, so that people are fully aware of what they are being encouraged to do. A failure to advertise green tax details to the public, or explain them in a timely manner to Parliament, breeds suspicion about their objectives, increasing the perception of them as revenue raising measures with no environmental purpose. (Paragraph 52)
14. We recommend that the Treasury pays far more attention to communicating the details and objectives of VED—and other environmental taxes—in the future. (Paragraph 55)
The Government's announcement of Budget 2008 was made in line with past practice: the reforms were set out in the environment chapter of the Red Book with accompanying rates tables in Annex A of the report. Rates were also set out in the Budget 2008 press notice. There has been no shortage of publicity surrounding the VED reforms announced at Budget 2008 and it is likely that the level of public awareness around car purchasing choices has increased as a result.
In light of the high level of public interest in these reforms, however, at the Pre-Budget Report the Government has taken steps to ensure that the public are able to access easily information about VED rates for the next two years. This includes through:information in the Budget document and press notices, available on the Treasury website;[73]

information on the specific details of reform to VED, also available on the Treasury website;[74]
a Frequently Asked Questions page specific to the VED reforms on the motoring section of Directgov,[75] which will help the public to understand which VED rate their car will be subject to. A link to this is also provided on DVLA's homepage; or
contacting DVLA or the Treasury directly.

15. We would further observe that if changes to VED were introduced on a revenue-neutral basis, with reductions for low emissions cars matching in value the revenue raised from increased rates for high emissions vehicles, the policy would be both more acceptable to the public and could unequivocally be communicated as green taxation. (Paragraph 56) Road tax was first introduced in 1910 and has been used principally as a revenue raising tax since that time. In March 2001, the Government made the decision to charge it on a CO2 basis for the first time—making the UK the first member state in the EU to do so. This change was made so that, in addition to raising revenue for the Exchequer, VED would also play a role in incentivising the purchase and manufacture of lower-carbon vehicles.
The Government does therefore not see VED principally as an environmental tax, in the same sense as, for example, the Climate Change Levy, which was set up purely with environmental purposes; however, it is a tax that is charged on an environmental basis.
That said, the impetus for the Budget 2008 reforms was an environmental one: as the Exchequer Secretary said in her evidence, had the Government simply aimed to raise revenue from VED, there are considerably more straightforward ways of doing so. The decision at Pre-Budget Report to maintain the creation of new bands, underlines this commitment.
The case for increasing the number of VED bands is, as set out above, one that has been widely supported, including by SMMT. However, in order for VED to be effective, it is necessary not only for the number of rates to increase, but for differentials between the rates to be clear. To achieve this, it remains necessary to raise some rates, and decrease others.

16. We are surprised that the Treasury has risked provoking such political opposition for an environmental measure which, according its own projections, is of limited benefit. We recommend the Treasury consults on and examines the case for a much more ambitious reform of VED. While this might provoke more opposition from those wanting to buy or already owning higher emissions vehicles, it might also provide the opportunity for a more positive presentation, based on higher carbon savings and bigger tax discounts for low emissions vehicles. (Paragraph 63) As set out above, the Government believes the right approach is to introduce gradual changes to VED rates and thresholds. In shaping VED policy, the Government scrutinises a range of options for reforms to rates and thresholds, taking into account the effects of each on a variety of factors. As with all tax policy, tax rates policy will continue to be made in the Pre-Budget Report and Budget.

17. Complementing the use of VED to shift the market towards more efficient cars, the Government should do much more to accelerate the development of new vehicle technology (such as hybrids and fully electric cars); improve public transport nationally; and encourage the growth of car-sharing clubs and schemes, especially for groups that are particularly car-dependent, such as the elderly, disabled, large families, and those in rural areas. (Paragraph 65) The Government is working hard to improve the sustainability of transport in the UK. As the Exchequer Secretary mentioned in her evidence to the Committee, the reforms to VED are part of a package aimed at reducing greenhouse gas emissions in the UK. As part of this package, Budget 2008 announced a £40 million investment in Research and Development, to encourage the development of low carbon vehicle concepts. This investment has subsequently been increased to £100m, with contributions from One North East and Advantage West Midlands.
The Government also announced in October that, as part of this £100m programme, motor manufacturers will be invited to bid for the opportunity to participate in a £10 million project to run electric car and ultra low carbon vehicle demonstration projects. The Government has also launched new competitions dedicated to UK research into improving technology that could make electric and other green cars more practical and affordable.
Furthermore, the Government is calling on the European Investment Bank to double its financial support for the next generation of greener cars by making available €8 billion over the next two years. This support should target significant carbon dioxide reductions through research, development and innovation expenditure, as well as improving the energy efficiency of related infrastructure and production. The funds should be made available quickly on a fair, equitable and commercial basis across all Member States.
In addition to VED, the tax framework also provides other incentives for the development, purchase and use of low carbon fuel-efficient vehicles. Company car tax was reformed in 2002 and is now based on CO₂ emissions to encourage employers and employees to choose less polluting vehicles. Fuel duty rewards those driving fuel-efficient vehicles with reduced running costs. The Government also provides tax incentives for purely electric vehicles, including: an exemption from VED, a reduction in the percentage used for the calculation of company car tax and the provision of enhanced capital allowances for companies purchasing electric and low carbon cars. Electric vehicles also pay no fuel duty.
Over the last decade, there has been a significant increase in investment in transport in the UK—by over 70% in real terms. This investment has contributed to, for example, the construction of the UK's first high-speed rail link—the Channel Tunnel Rail Link—and the upgrading of the West Coast Main Line. In addition, since April 2008, free off-peak bus travel for older and eligible disabled people has been extended nationally.
Additionally, the Department for Transport encourages local authorities to include car-based initiatives such as car clubs and car sharing schemes as part of their local transport strategies. Car sharing is being specifically promoted by the DfT as part of its ACT on CO₂ campaign. The Department has also set up Cycling England in 2005, to develop cycling programmes. The scheme's budget is being increased to £20 million in the current financial year, and to £60 million in the two following years. Increased investment such as this, coupled with reforms to delivery, has ensured significant improvements in the performance of the transport network.

18. We strongly support the Treasury's use of VED as an environmental tax, and we welcome the changes announced in the Budget. However we are seriously concerned that even the projected differentials between VED bands remain too small to be effective and, in consequence, the projected carbon savings are far less than they could be. We also believe that both the proposed changes in VED rates and the objectives of VED as an environmental tax, have been poorly explained and communicated. (Paragraph 66)
19. We recommend the Treasury looks again at hypothecating VED revenues to areas such as public transport and subsidies for car clubs or electric vehicles. Alternatively VED changes could always be made on a revenue neutral basis with cuts in the rates levied on low emission cars to match the increases on high emission models. This might increase both the environmental benefits of VED changes and the level of public support for them. (Paragraph 69)
The Government welcomes the Committee's support for the use of VED in providing environmental signals.
However, the Government does not hypothecate taxes, and it remains the case that the Government's spending priorities are not, in general, determined by the way in which the money is raised. As the Committee noted in its report on the Pre Budget Report 2007 and Comprehensive Spending Review, hypothecation of tax revenues for particular purposes can reduce flexibility in managing public finances.
It is true that VED does have a double benefit in that it provides finances for the public services, as well as encouraging the take-up of low emission vehicles. However, it makes sense that, when raising revenue to fund public services, the Government should target those revenue sources that will help shift the burden of taxation from goods to bads. The polluter-pays philosophy inherent in the VED system is central to that principle.

The Export Credits Guarantee Department and Sustainable Development—11^th Report [76]

Conclusion/Recommendation Government Response

1. The ECGD has made progress on supporting sustainable development that deserves to be recognised. The objectives introduced by the 1999 Mission and Status Review placed considerable demands on a small, specialised department, with a difficult role to play in balancing business and financial needs with wider government concerns. The mechanisms put in place following the review are a sound basis for further action on sustainable development. (Paragraph 5) The Government agrees with this conclusion.

2. While the ECGD must balance the duty to raise its standards of sustainable development against its duty to support the competitiveness of UK industry, it has a unique capacity to influence and raise standards internationally. (Paragraph 7) ECGD's statutory purpose is to facilitate exports. Its policy in regard to sustainable development is to apply the relevant international standards in its consideration of the projects which it is asked to support. Taking account of the Government's objective that ECGD should seek to promote fair competition by the adoption of consistent practices for assessing projects on a multilateral basis insofar as export credit policy and practice is concerned, ECGD seeks to play a full part in the international fora that address export credit issues, with the aim of establishing policies and practices that will improve the rigour and uniformity with which agreed environmental standards are applied in the provision of export credits. ECGD has been successful in leading and influencing policies towards the achievement of higher standards, such as the development of, and subsequent revisions to, the Common Approaches and the OECD agreements that address bribery and corruption. Productive Expenditure and the subsequent Sustainable Lending was also a UK initiative. ECGD will continue to push for higher involvement as opportunities arise in the future.
While ECGD's capacity to influence is limited by virtue of it being one member of a community of ECAs, it will continue to apply its energies to continuous improvement of policy and practice and the consistent application of standards. It will continue to push for improvements to be made to the Common Approaches when this is due for revision in 2010. For example, included in this response are specific issues on which ECGD will be seeking to lead in the negotiations for greater transparency, as described in paragraph 14 of the Introduction.[77]

3. We conclude that a change to the ECGD's primary remit is not currently necessary, but continued scrutiny of further progress is important. The current remit provides an adequate basis for sustainable development to underpin its activities. The challenge for the ECGD is to demonstrate that sustainable development is given appropriate weight within its current remit, and that it does nothing that would actively undermine this principle. (Paragraph 10) The Government agrees that there is no need for a change to ECGD's primary remit.
The Government is satisfied that sustainable development is given appropriate weight within ECGD's current remit, consistent with its statute and the Government's sustainable development objectives and the relevant policies that flow from these. The disclosure by ECGD of the transactions which it has supported and the role played by the Export Guarantees Advisory Council in advising on the application by ECGD of its Business Principles assist in demonstrating that sustainable development is appropriately taken in account in its decision-making.

4. The ECGD has a responsibility to support UK exporters. Any move by the Government to adopt policies that limited support to sectors such as defence, aerospace and fossil fuels, or to assess these sectors by different standards, would need to be carefully assessed. While these sectors remain within the ECGD's portfolio, the agency must take steps to improve the scrutiny of sustainable development in these areas. (Paragraph 14) The Government has no plans to limit the support that ECGD may offer to any particular export sectors that would otherwise be eligible for ECGD support, or to change the standards that ECGD currently employs in making its assessments. It is the Government's expectation that ECGD will continue to scrutinise the potential environmental impacts of the projects which it is asked to support, on a basis which is consistent with ECGD's published Case Impact Analysis Process (CIAP) in order to satisfy itself that they will meet the relevant international standards in all material respects.

5. A large programme of support for sustainable and environmental industries would help the ECGD to revitalise its role while remaining within its current remit. Although it cannot compete directly with the private sector, the ECGD should establish a programme actively to promote its services to environmental industries and to other projects that could support sustainable development. (Paragraph 17) During 2008, ECGD undertook a targeted campaign to raise the awareness of its services amongst those companies operating in the sustainable development arena. Through this campaign it became apparent that many sustainable and environmental industrial ventures are at an early stage in the development of their export activity and, therefore, have no immediate need for ECGD support. ECGD will continue to make its services known to this sector, working alongside other Government Departments, so that as it matures, and its export potential grows, ECGD is ready to offer support for those projects that represent an acceptable risk and comply with its Business Principles.
During 2009, ECGD will consider, in collaboration with other Government Departments, how its 'Renewables Initiative' announced in 2002 might be incorporated into a new Government initiative to coincide with the UNFCCC COP 15 and Kyoto Protocol COP/MOP 5 meeting in December 2009 in Copenhagen.

6. No offer of support should be made, whether actual or provisional, until the ECGD's Business Principles Unit has completed its assessment, and its recommendations have been duly considered. The Government must be prepared to provide the ECGD with whatever further resources are necessary for the Business Principles Unit to carry out its sustainable development assessment work swiftly, effectively, and consistently. (Paragraph 20) ECGD will continue to monitor the workload of its Business Principles Unit to ensure that it has available to it the resources and expertise which are required to enable it to undertake its remit.
The Government considers that this recommendation does not take account of the practical problems which would arise if no indication of its potential support (albeit conditional) could be given before the assessment of the Business Principles Unit is available and, accordingly, does not accept this recommendation.
The assessment of the environmental impacts of a project can take some time; but the tendering timetables required by project sponsors can often mean that an exporter has to provide a bid, including the possible provision of export credit financing, before such an assessment has been completed. Given the costs of bidding, exporters would not be prepared to make bids unless they receive an indication of the possibility of the provision of ECGD's support, and any possible terms and conditions on which it may be made available. In regard to environmental impacts, the assurance that ECGD can give at that juncture necessarily has to be conditional on the project meeting international standards in all material respects in regard to environmental impacts, on a basis which is consistent with the Common Approaches and ECGD's policies.

7. The ECGD should disclose the precise standard used as the basis for environmental and sustainable development review in every high-impact case. This information should be published prominently alongside the project assessment information. (Paragraph 21) From 1 April 2009, ECGD will publish details of the international standards against which high potential environmental projects have been assessed, along with a note of its reasons for its decisions.

8. We recommend that the ECGD commissions an independent study into how its environmental and sustainable development standards could be tightened, including an assessment of how UK Sustainable Development objectives could be effectively reflected in the ECGD's assessment standards. Such a study should be used to help the ECGD raise international standards. The ECGD should devise and publish a strategy, so that it can be properly scrutinised, and so that UK exporters and other Export Credit Agencies are aware of the ECGD's intentions. Where a standard can be raised without undue impact on the competitiveness of UK industry, the higher standard should be adopted and concomitant action from other Export Credit Agencies should be encouraged. (Paragraph 23) As set out in the introduction to this Response,[78] the Government does not accept that it is ECGD's role to interpret the UK's sustainable development objectives where these have yet to be developed into specific policies that ECGD could take into account when conducting its activities. Nor is it ECGD's role to develop international sustainable development standards. Accordingly, the Government can see no benefit in such an independent study.

9. Constructive engagement and the ability to exercise discretion are important and, when used appropriately, can help to improve project standards in general. But the failure effectively to communicate these decisions and the reasoning behind them leaves the ECGD open to criticism and suspicion. The disclosure of the reasoning behind these decisions, and the effects of the constructive engagement process, must be improved if the system is to inspire confidence. (Paragraph 26) The Committee's recognition of the importance of constructive engagement and of ECGD's ability to exercise discretion is welcomed. Since it is ECGD's policy that projects should normally comply in all material respects with the relevant international standards in regard to environmental and social impacts, the purpose of constructive engagement is to make this requirement known to project sponsors, so that projects can be brought into compliance in order to obtain ECGD support. Henceforward, ECGD will disclose the international standards which have been applied to the assessment of high potential impact projects (see recommendation 7), together with a note of its reasons underpinning any ECGD decision to support these projects.

10. We welcome the recent decision of the ECGD to report the carbon dioxide impacts of high and medium impact projects. The information gathered under this exercise must be put to practical use by helping further to improve the standards of individual projects. This is an area where the ECGD should be leading from the front and setting an example for other Export Credit Agencies. The ECGD should also use the data to review the carbon footprint of its portfolio as a whole and to identify areas where further emissions reductions could be achieved without limiting the scope of its business. (Paragraph 28) The Government welcomes the Committee's support for ECGD's decision to report carbon impacts. As described in its Sustainable Development Action Plan, ECGD implements the UK's sustainable development objectives by applying standards that have been agreed internationally in order not to compromise the level playing field objective set for ECGD by Ministers. ECGD's environmental due diligence seeks to establish whether a project meets the relevant international standards.

11. It is difficult to assess exactly how aircraft will be used. However, by excluding aerospace from the Case Impact Assessment Process too many important sustainable development impacts are left unconsidered. We reiterate the conclusion of our predecessor Committee that the ECGD should bring all aerospace-related applications within the Case Impact Assessment Process, in addition to ICAO assessment. Full assessment may be difficult, and may even be impossible on occasion, but it is crucial to assess civil aerospace under these criteria to demonstrate that these issues have at least been considered. In such cases the assessment process should be accompanied by a narrative explaining any difficulties in applying the process, and setting out how conclusions have been reached. (Paragraph 31) In order to determine whether the environmental impacts of a transaction are acceptable, ECGD compares them to the relevant international standards; this is the case whether an application falls for consideration under ECGD's Case Impact Analysis Process, or otherwise. The international standards for aerospace transactions relate to noise and emissions, as established by the International Civil Aviation Organisation, the EU and the USA. ECGD accordingly applies these standards. A change to ECGD's process for scrutinising aerospace transactions would therefore not alter the standards applying to that sector.
As the Committee has acknowledged, it is difficult to assess how an aircraft will be used over its lifetime. Hence, an assessment of emissions at the time ECGD is considering its decision on the provision of support would lack merit. Nonetheless, in the light of the comments made by the Committee, ECGD will explore with airlines during 2009 the feasibility of them being willing and able to report periodically the emissions of the aircraft that benefit from its support so that there is evidence of the actual emissions over time. This would be consistent with the general principle proposed in 'The Greenhouse Gas Protocol—A Corporate Accounting and Reporting Standard' by the World Business Council for Sustainable Development and the World Resources Institute in 2004, that greenhouse gas emissions should be reported by those that own, have control over, or derive an economic profit from the activities they undertake.

12. We do not believe that the ECGD has struck the appropriate balance between protecting commercial confidentiality and ensuring due transparency. The ECGD provides support from public funds and exporters must therefore recognise that this facility should necessarily entail certain conditions to ensure adequate disclosure and scrutiny of funding decisions. In 2003, our predecessor Committee recommended that 'requests for confidentiality should be tested against rigorous criteria to ensure that only such information as might genuinely compromise clients' commercial activities is withheld. A high degree of disclosure should become a condition of ECGD support.' We reiterate this recommendation. (Paragraph 35) The entitlement to confidentiality, either for individuals or entities, is set by the law of confidence, and the basis for balancing openness and confidentiality by government and public authorities is established through the Freedom of Information Act and the Environmental Information Regulations. ECGD operates within these frameworks.
Where possible, and bearing in mind the need to respect commercial confidentiality, ECGD publishes details of transactions supported. In its most recent Annual Review and Resource Accounts, ECGD listed 98% by value of business supported.

13. The ECGD needs to ensure that project information is disclosed at a stage in the assessment process where any challenge to the case could still be taken into account. The ECGD should make the disclosure of basic project information (name, involved parties, and a brief description) a pre-condition of its appraisal process, for all categories of project. As further assessments of the project's economic, social and environmental impacts are made, these too should be made publicly available. (Paragraph 36) As stated in its Introduction to this Response,[79] the Government is willing to consider this recommendation. However, for the reasons stated in the Introduction, the Government wishes ECGD to pursue this multilaterally through revisions to the Common Approaches.

14. By failing to disclose a wider range of information as a matter of course, the ECGD has directly contributed to the negative perception of its sustainable development policies. (Paragraph 38) See responses to recommendations 7, 9, 13 and the Introduction.[80]

15. Where decisions are taken that appear contrary to the information available in the public domain (for example in the classification of projects into impact categories) the ECGD should publish an explanation of their decision and provide further supporting material as necessary. This will increase confidence in the ECGD's procedures and make it easier for Parliament and interested parties properly to assess the ECGD's decisions. (Paragraph 39) See responses to recommendations 7, 9 and 13 and the Introduction.[81]

16. Where the ECGD conditionally agrees to support a project that does not meet all of its standards, it should publish a document clearly setting out where the project falls short; why the ECGD remains prepared to support the project, and what actions the ECGD will take to ensure that the project is brought up to standard. The ECGD must then demonstrate that these standards have been achieved. (Paragraph 40) It is ECGD policy that projects should normally comply in all material respects with the relevant international standards.

Greener Homes for the Future? An environmental analysis of the Government's house-building plans[82]

Conclusion/Recommendation Government Response

Housing target: 3 million new homes by 2020

1. We recommend that both the Department for Communities and Local Government, and the National Housing and Planning Advice Unit, review the share of new homes attributable to meeting the aspiration for bigger homes and gardens in their national house-building plans and targets; and seek the advice of the Sustainable Development Commission on the environmental limits of continuous annual house-building targets. (Paragraph 8)
2. We recommend that the Government urgently reviews the assumptions on which the 3 million homes target was based and whether it is still justified on the basis of the latest economic growth projections, fundamental changes in the mortgage market and house prices which are falling anyway. (Paragraph 12)
In July 2007, Communities and Local Government published Homes for the future: more affordable, more sustainable, the Government's green paper on housing. Homes for the future set out our intention to increase housing supply to 240,000 new homes per year by 2016 in order to meet rising household growth and to address the long-term under supply of new homes, so that everyone can have access to a decent home at a price they can afford, and in a place where they want to live and work.
Although, good progress has been made in increasing housing supply consistently since 2001 to the nearly 200,000 additional new homes in 2007-08, the highest for 17 years, the Government fully recognises the challenges in delivering 240,000 additional new homes target by 2016, and the cumulative additional new homes targets of 2 million additional new homes by 2016 and 3 million by 2020.
The Government's house building targets remain a priority. They were drawn up recognising the long-term trends in household formation and therefore housing demand. Household projections are for the number of households to grow by 223,000 a year. The decline in the availability of mortgages, and falling house prices, does not, in the Government's view, affect the fundamentals of these demand and affordability pressures. Despite the current market conditions, there is strong pent-up demand for new homes with the potential number of new households still increasing faster than the number of new dwellings. People are living longer, and changing lifestyles and a legacy of undersupply have led to considerable unmet demand and need for places to live. Therefore, the Government does not believe that the long-term assumptions underpinning the housing targets set out in 2007 have altered.
Housing price affordability arises from the long-term real house price growth, which requires a long-term response. The National Housing and Planning Advice Unit's (NHPAU) publication Affordability Still Matters[83] set out why, in a changing housing market, it is important that we make decisions for the long-term benefit of this country. Furthermore, the NHPAU have advised that given the difficult immediate outlook for the economy and the housing market in June 2009, they took a cautious approach about the assumptions which underpinned their analysis, for example in respect of levels of future household formation and economic growth.
The bottom end of the NHPAU supply range essentially replicates Government targets for new homes. The top end of the range represents an assessment of what it would take to stabilise affordability over the long-term and to tackle pent up need and demand. The NHPAU made no explicit allowance for demanding bigger homes and gardens in our advice. However, they did attempt some analysis about the impact of delivering more family homes and fewer flats which modelling suggests would have a more significant effect on improving overall affordability. The NHPAU has recently commissioned further research about the impact of factors such as quality, density and mix on affordability outcomes.
The NHPAU will refresh its advice in the light of recent major developments, however, as they have made clear the NHPAU do not expect this work to alter our fundamental position—that as a country we need to build more homes than we are currently planning for. Given that the fundamental drivers of demand and need for new homes remain, when market conditions improve the likely consequence of not providing new homes will be higher house prices and worsening affordability.
Therefore, the Government does not believe that the long-term assumptions underpinning the housing targets set out in 2007 have altered such as to warrant changing the targets. We of course recognise that house building brings with it potential environmental costs. The housing green paper set out a range of actions to address the challenge of climate change and to protect the environment. These were welcomed in the responses to the green paper.
The housing green paper was subject to an impact assessment, which includes a specific impact test on sustainable development, carbon assessment and other environmental assessments. This was published alongside the housing green paper and its sister documents. We should also remember that there can also be environmental (as well as social and economic) costs associated with not providing sufficient homes for people to live—for example higher transport emissions associated with people commuting over longer distances.
As set out in the impact assessment for Homes for the Future: more affordable, more sustainable[84] the detailed analysis of the impacts will be carried out on regional and local plans, including specific developments. A sustainability appraisal, incorporating a strategic environmental assessment, is part of the process of preparing regional spatial strategies (see responses to recommendation 4 below).
Planning Policy Statement 3: Housing (PPS3)[85] paragraph 33 asks local authorities and regional planning bodies, working together, to determine levels of housing provision at local, sub-regional and regional levels, in their development plans. This should take into account a range of factors, such as need and demand, the availability of suitable land, and the Government's ambitions for affordability and increasing housing supply. Sustainability appraisal of the environmental, social, and economic implications of these plans must draw on advice from statutory consultees including English Nature and the Environment Agency, and any environmental limits of house building targets would be identified through this process.
Given the requirement for appraising both regional spatial strategies and the local development frameworks, which govern the location of development, including housing, the Government does not think it necessary to invite the Sustainable Development Commission to undertake an assessment on top of these processes.

3. In the light of current market conditions, we recommend the Government changes the balance of its 3 million new homes by 2020 target, so that the proportion that are built after the zero carbon target is significantly increased. (Paragraph 14) In our 2007 policy statement Building a Greener Future: towards zero carbon development[86] the Government announced its policy for all new homes to be zero carbon from 2016. The policy will be supported by interim amendments to Building Regulations in 2010, when the Government intends to introduce a standard based on a 25 per cent improvement in energy performance from the current (2006) standard, and 2013, when there will be a 44 per cent improvement on the 2006 standard.
In practice, near to medium-term reductions in levels of house building will increase the percentages of new homes that are built to the higher standards when they come into effect. However, it is not the Government's intention to delay housing supply for the sake of increasing the percentage of new homes that will meet the zero carbon homes standard. Indeed, it is possible that there would be unintended consequences if such an approach were to be adopted, since it could adversely affect industry's ability to develop the capacity, skills and investment needed for the transition to zero carbon. The Government considers it important that there is a phased approach to introducing the new standards to allow industry to adapt. Furthermore, as noted above, demand pressures remain, and we do not consider it appropriate to constrain supply artificially in any circumstances, let alone in those which obtain at present.

Low and zero carbon developments

5. We recommend that, once the zero carbon standard comes into effect, the initial priority for developers must be to build onsite generating capacity and planning policy should reflect this priority. Where off-site renewables are used, these should not require the use of a private wire to connect them to the housing development that is funding them, but should simply be connected to the grid. However, it is essential that controls are established to ensure such off-site generation is additional to what power companies would build anyway. Whether new developments build on-site (or adjacent) generation, or pay into some kind of proposed community energy fund, we recommend that the Government seizes the opportunity of the 2016 zero carbon target to accelerate the development of district renewable energy sources to supply existing neighbourhoods. (Paragraph 28) The Government agrees with the Committee's analysis of the environmental contribution that the zero carbon homes target can make, notwithstanding the challenges and difficulties of meeting the target just through on site renewable energy sources. The Government published in December 2008 a consultation on the detailed definition of zero carbon homes[87]. The definition proposed sets out a hierarchy comprising, in turn:

a high standard of energy efficiency, as the highest priority measure for reducing carbon emissions from new homes next, carbon reductions achieved on the site of the development and/or through direct connection of low and zero carbon heat (not necessarily onsite)—this means that developers will not only need to carry out energy efficiency measures but also, in practice, to put in place some level of onsite low or zero carbon energy supply (or connections to heat networks) in order to meet the required standard, or make use of an existing scheme; and
a range of (predominantly offsite) allowable solutions—which could include off-site renewables—for reaching net zero carbon

The Government has yet to finalise the precise regulatory mechanism for enforcing these standards and has sought views in the consultation. The Building Regulations already encompass the equivalent of energy efficiency and carbon compliance levels. Planning also has a key role in enabling delivery of local renewable and low carbon sources of energy. This is made clear in the planning policy statement (PPS) on climate change[88], which makes clear that, through regional and local strategies, new development should be planned to make good use of existing and planned opportunities for local renewable and low-carbon energy. The PPS has been designed to deliver a new wave of local renewable energy and community energy schemes to support the delivery of zero carbon buildings and a low carbon economy.
The Government notes the Committee's views on private wire solutions. The Government's approach is discussed in the consultation document. It does not consider that private wire solutions are appropriate for achieving the carbon compliance standard. The consultation invites views on whether they could be considered as an allowable solution.
Offsite renewable electricity is included on the list of allowable solutions where either (i) an investment (e.g. a shareholding) in the renewable electricity capacity is provided to the home buyer or (ii) there is a direct physical connection (i.e. electrical cables) between the renewable energy generation and the housing development. Where a developer opts for the investment approach, there would be no need to install a direct physical connection (or, more particularly, an unregulated private wire arrangement). The more remote the location of the energy supply from the home, the less likely it is that the developer would choose to install a direct physical connection. The investment option also represents a tangible way of demonstrating that the new home has facilitated the investment in the renewable electricity capacity.
The Government recognises the benefit of community scale energy solutions in reducing bills and tackling problems of climate change and security of supply. Consultations on the detail of a new heat and energy saving strategy[89] that seek views on proposals for action and support at household and community level, including on removing barriers to district heating networks, was published on 12 February 2009.
The inclusion of a range of offsite 'allowable solutions' for reaching the zero carbon homes standard is intended, among other things, to stimulate community scale energy sources which may serve existing as well as new developments. Therefore one of the allowable solutions proposed in the consultation is to allow the export of surplus heat from a district heating scheme on a new development to existing buildings.

10. We recommend that the Government ensures consumers are educated about both the requirements and benefits of highly energy efficient housing. We further recommend that the Government work with the construction industry and bodies such as CABE, UK-GBC, and EST, to develop designs for low and zero carbon homes that are as easy to live in, while maintaining the specified level of energy efficiency, as possible. (Paragraph 43) The Government is aware that people need significantly improved information and support on what they can do to manage their energy use better, and improve the energy efficiency of their home. In 2007, the Government launched the Act on Co2[90] campaign that aims to engage citizens on climate change issues, address the confusion and powerlessness, which can impede people from taking action, and encourage genuine and sustained behaviour change to help reduce carbon emissions and meet the UK's emissions targets.
The campaign has been developed in the context of high public awareness and concern about the impacts of climate. We understand that there is public confusion about what actions can be taken, and the relative impact of different actions. In September 2008, the Government launched a new phase of the Act on Co2 campaign on national television, press, radio, and online. Since the launch of the new phase, we have found that:

the Act on Co2 advice line has received 208,238 callers, which is almost double the volume of calls received in the same period in September 2007 to February 2008
565,000 unique visitors have accessed the Act on Co2 website
forty-seven per cent of citizens are now aware of the logo, which is perceived by the majority to be from Government
sixty-six per cent say the adverts increase their interest in energy saving in the home. Three quarters of people who said the adverts did not increase their interest said it was because they felt they were already doing the actions
seventy-three per cent of respondents currently say they have taken actions or are planning to take actions to reduce their CO₂ emissions as a result of the campaign. This compares to 50 per cent in summer 2007, when research was undertaken to evaluate the first television campaign burst

Consumers taking action individually will play an important role in meeting the challenges we face, and in addition to the positive impact on climate change and security of supply, consumers taking action in this way will benefit from lower energy bills.
To help consumers realise these benefits the Government recently made the decision that smart meters should be rolled-out to all domestic households. We have set out further options to help consumers identify the best ways of saving energy, and accessing the measures to do so, in the Heat and Energy Saving Strategy consultation.
Energy performance certificates[91] (EPCs) provide information on the energy efficiency of a property, and can increase awareness and help people to take steps to improve the energy performance of their home. The Government is keen to expand the role of domestic energy assessors, who produce EPCs, so that they can provide free or low-cost home energy advice and detailed behavioural advice both to occupiers and the wider community. It is worth noting that as well as EPCs being used to raise awareness amongst consumers on the energy efficiency of new homes, they are also raising awareness of the energy efficiency of existing homes.
New homes are starting to benefit from EPCs as well as certificates for homes built to the Code for Sustainable Homes[92] standard. Marketing the benefits of energy efficiency is taking place through these programmes as well as part of the cross-Government Act on Co2 campaign. As more energy efficient homes come onto the market and there is a greater awareness of the advantages these energy efficient homes can provide through cheaper running costs, and making the home more commercially attractive.
The Government's current consultation on the detailed definition of zero carbon homes recognises that these homes need to be no less desirable to consumers than homes built to today's standards. Among other things, this means technologies installed in zero carbon homes need to be reliable, easy for occupants to use and affordable to maintain.
It is primarily for industry to design zero carbon homes and to devise and promote features that will be attractive to consumers. However, Government is playing a role in stimulating innovation in this area through its exemplar programmes for zero carbon homes, including the Homes and Communities Agency's Carbon Challenge[93] and the eco-towns programme[94].
Government is also providing pump-priming funding to the Zero Carbon Hub[95], which has been set up by the industry to manage delivery of the zero carbon homes programme. One of the aims of the Zero Carbon Hub is to capture practical experience and use this imaginatively to accelerate mainstream adoption of low and zero carbon methods and technologies[96]. The hub has set up a series of work streams to take this, and other aspects of the programme, forward. The hub will be working with a variety of industry organisations and other bodies on the various work streams.

11. We recommend that the Government clarifies what impacts the increased capital costs of low and zero carbon homes will make to their running costs and how costs will be paid for. In particular, we recommend that the Government urgently considers introducing feed-in tariffs as a way of making zero carbon homes more financially attractive to developers and homebuyers. (Paragraph 48) The Government's consultation on the detailed definition of zero carbon homes and the supporting impact assessment[97] estimate the capital cost implications of a range of options for meeting the zero carbon homes standard. An estimate is also given of the impacts on household energy bills.
We would expect the majority of the capital cost of meeting the zero carbon standard to be passed back to landowners in the form of lower land prices, rather than being retained by house builders or passed on to buyers of new homes.
Through the Energy Act 2008 the Government has taken powers to enable it to establish a system of feed-in tariffs for small-scale low carbon electricity generation up to a maximum capacity of five megawatts.
It remains to be decided in what form these incentives will be made available and which parties will be eligible to claim them. Government will be considering the interaction between the feed-in tariff and its zero carbon homes policy carefully.

6. We recommend that the Department for Energy and Climate Change (DECC) and the Department for Communities and Local Government (CLG) urgently identify the practical difficulties in establishing extensive district energy systems, and implement a plan to address them. We further recommend that the Government commissions and publishes an assessment of the potential of biomass CHP, involving a detailed analysis of UK capacity to produce the requisite biomass (bearing in mind other demands for land use, and other demands for biomass), the sustainability of biomass supplies, and the effects of biomass CHP on air quality in urban areas and how to minimise them. (Paragraph 31) The Heat and Energy Saving Strategy consultation, published on 12 February this year, considers the benefits of district heating and sets out options aimed at removing the barriers that currently restrict its deployment. In parallel, the Government is looking at the potential for all renewable energy technologies, including bio energy technologies with CHP and without, as part of the research for the renewable energy strategy (RES) to be published in 2009. As part of this work, we will also be reviewing the sustainability of biomass and the air quality impact of biomass solutions.
The impact of biomass plant on air quality is controlled through a number of means, including through the planning system, the Clean Air Act (1993), and Environmental Permitting. The RES consultation included a number of options for the protection of air quality, and there is potential for emission standards to be improved and high quality plant encouraged into the market.
Some analysis has been undertaken based on the assumptions included in the consultation for the uptake of biomass heat. This shows that if final uptake is limited to 38 terawatts hours (TWh), is of high quality, preferentially replaces current coal and oil heating, and is located away from large urban areas, air quality impacts are minimised (£142m annual value of life years lost). This analysis is highly sensitive to the assumptions used. Analysis of uptake based on lower quality units, around 50 TWh of final uptake, and with no preference against replacing gas heating in urban areas gave an annual value of life years lost of around £2,800m.
The Government's consultation on the detailed definition of zero carbon homes, and the supporting impact assessment, recognise that the higher the level of carbon reduction to be achieved onsite, the greater the likely level of biomass uptake. This could give rise to adverse consequences for the environment in some circumstances, for example local air quality considerations associated with the combustion of biomass in smaller scale plant in urban areas. The impact assessment provides a monetised estimate of the health impacts of such air quality considerations under a range of options. The increased emphasis in the consultation on community scale approaches to meeting the zero carbon homes standard should help to reduce the incentive to install on-site technologies in circumstances where they would have adverse consequences.

The code for sustainable homes

8. Given the requirement to make rapid cuts in carbon emissions, the Government should speed up full implementation of the code for sustainable homes. (Paragraph 34)
9. It is not possible to predict what effects the mandatory rating of new homes against the code for sustainable homes will have on the market, but we cannot be sure that it will deliver the necessary changes in consumer behaviour or developers' plans. We believe that the impact of mandatory rating might be undermined by allowing developers to opt for a nil-rating. We believe that a transformation in building design will only come about when new homes are required to be built to mandatory standards. We recommend that the Government makes further aspects of the code, beyond energy use, mandatory from 2010 onwards. (Paragraph 39)
Building Regulations set the minimum standards that all new homes have to meet and the Government has set a very clear timetable as to the direction of travel for energy efficient new homes via the zero carbon new homes policy (see response to recommendation 3 above). The Government is also strengthening or introducing other elements of sustainability into Building Regulations, such as the new requirement under Part G for water efficiency.
The code for sustainable homes on the other hand is a voluntary standard to enable and encourage homes to be built to higher standards of sustainability, although it does signal the future of Building Regulation requirements, for instance on energy efficiency, and the requirement for site waste management plans, which is now a regulatory requirement in England and Wales. However, there are some aspects of the code that may never become Building Regulations and it is right that these continue to be part of a voluntary, aspirational standard for those who want to go further than national standards. The Government thinks also that it is important to allow developers and products manufactures time to develop the best way(s) to build sustainable homes that achieve high environmental standards, but are also cost effective. It is important for government not to lead industry up technical cul-de-sacs and enable flexibility and choice.
It is worth noting that it is a requirement for homes that receive Government grant funding, or are built on Government land to be planned and built to level 3 of the code for sustainable homes. It is right that the Government should push forward the highest possible standards in house building that it is funding.
By mandating code level 3 for the public sector the Government is providing an incentive for manufacturers that supply the building industry to innovate and develop new products that will help developers meet higher levels of the code. It provides manufacturers with a substantial market for such products before the Building Regulations are updated making higher sustainability standards mandatory.
Mandatory ratings for all homes under the code for sustainable homes is part of a package of measures, including energy performance certificates to increase consumers and developers knowledge about efficiency and sustainability issues. Due to the time lag it takes to design, plan and build homes (approximately 18 months) it is too early to assess the impact of this policy.
The Government is currently reviewing the code to ensure that it, and its underpinning technical guidance, is up to date and reflect best practice. The Government intends to consult later this year on revisions to the code.
The planning policy statement (PPS) on climate change recognises that there may be cases where it is appropriate for local authorities to set local requirements for sustainable buildings where circumstances warrant this. Local circumstances could include for example where, without the requirement, the envisaged development would not be acceptable for its location (for reasons such as water stress). Any local requirement is expected to be specified in terms of achieving a nationally described sustainable building standard, in the case of housing by expecting identified housing proposals to be delivered at a specific level of the code. The PPS expects any local requirement to be viable having regard to the overall costs of bringing sites to the market and, in the case of housing development, consistent with delivering the new housing needed in communities including the need for affordable homes.

Eco-towns

19. We recommend that the Government applies the same environmental tests as set for eco-towns to all major housing developments from 2016. The Government must make clear how eco-towns will improve sustainability and reduce carbon emissions, particularly through the wider influence they could have on existing communities. (Paragraph 72) The Government has proposed ambitious standards of economic, social and environmental sustainability for eco-towns in a draft planning policy statement (PPS) on eco-towns[98], and these are now open to public consultation. These proposals reflect the specific nature and unique potential of eco-towns, and go further than any standards previously set for new developments.
Eco-towns are unique, and explicitly designed to demonstrate what is possible in terms of integrated sustainable living and to drive forward progress on green technologies. It has always been our aim that the lessons learned from eco-towns will be applied more widely as appropriate and through established planning procedures. Specifically, in discussions about the Thames Gateway eco-region consideration is being given to similar standards for the proposed eco-quarter.
The lessons learned from eco-towns, along with the progress on technology and manufacturing capacity that they will promote, will support our programme for zero carbon homes, and also our ambition for all new non-domestic buildings to be zero carbon from 2019.
Eco-towns represent a real opportunity to integrate sustainability from the outset. While the physical act of building new towns will not cause a direct reduction in carbon emissions this ambitious project will show us how we can design for sustainable communities in which individuals are able to live, work and raise their families with much lower carbon emissions than is currently the case. In particular, the proposed planning standards set out in the draft PPS include:

zero carbon across the whole town—for all buildings within the development—making good use of a range of local renewable energy
homes—all of the eco-town standards for homes stretch beyond current guidance and Building Regulations, requiring for example carbon reductions (from space heating, hot water and fixed lighting) of at least 70 per cent compared to current Building Regulations
transport—supporting more walkable (and cycle friendly) communities, and emphasising good public transport links to larger communities in order to ensure at least 50 per cent of journeys are made by non-car means
employment—access to one job per home without needing to use a car—there are no standards for employment associated with most development, so this is an ambitious first ????
green infrastructure—40 per cent of the town's area as high quality green space, with at least half of this public, including space for growing food and connections to existing green networks
services—good quality education, health, sports and cultural services will also be made available in eco-towns, and many (if not most) of these services should be available to neighbouring smaller communities ????
water—a range of measures to ensure high standards of water efficiency and quality, supported by a water cycle strategy including incorporating sustainable urban drainage systems (SUDs) and where this is not feasible (as identified within a relevant surface water management plan) avoid connection of surface water run-off into sewers, and an aspiration to water neutrality across the wider area, for water-stressed areas, which may include retro-fitting of existing buildings
biodiversity—planning permission may not be granted for eco-town proposals that are likely to (a) have a significant adverse effect on internationally designated nature conservation sites or sites of special scientific interest; or (b) result in a net loss of biodiversity from the local area. A strategy for conserving and enhancing local biodiversity should be produced to accompany planning applications for eco-towns

These bold proposals, combined with the town-sized scale of the development, should enable new 'green' building methods, sustainable approaches and green technologies to develop into more mainstream industries and reduce marginal costs.

20. We share many of our witnesses' concerns about the full environmental impacts of eco-towns. We recommend that the Government re-examines its proposals to ensure they generate a much greater level of sustainability, particularly in terms of being located close to existing commercial centres, employment opportunities, and public transport links. (Paragraph 93) The Government has published a draft planning policy statement (PPS) on eco-towns since the witnesses' concerns were expressed, and indeed since the publication of the Committee's recommendations. These set out the very high proposed standards for economic, social and environmental sustainability in eco-towns.
As part of our assessment of each location we have produced a sustainability appraisal which provides greater detail about the environmental sustainability and other issues for each location and tests these against comparative sites. This has been published alongside the draft PPS for consultation; comments are invited on the issues identified within the appraisal.
As the sustainability appraisal makes clear, eco-towns represent a real opportunity to integrate sustainability from the outset but their success in sustainability terms will depend on the degree to which they promote a genuine shift towards more sustainable forms of transport (walking, cycling and public transport). As set out above, the standards proposed in the draft PPS seek to raise the bar in sustainability terms with stretching standards on transport, for example through:????

a high 'model share' target which aims to support at least 50 per cent of trips originating in eco-towns to be made by non-car means ????
schools within 800m from homes for children under 11 and
homes within ten minutes walk of frequent public transport and neighbourhood services

Where eco-town proposals are sufficiently developed, further assessment is underway to look at financial viability, transport and deliverability, with support from PricewaterhouseCoopers, ATLAS and the Department for Transport.
Summaries of these assessments will be published in due course. Following publication of the final eco-towns short-list any resulting planning applications would need to include a range of supporting documents to identify and mitigate the impact of proposals, including a detailed environmental impact assessment, economic strategy, travel plan, biodiversity strategy, water cycle strategy and a sustainable waste and resources plan.

Building Regulations

12. We recommend that much greater emphasis is placed on energy efficiency and sustainability within building control, with the Government ensuring that extra training and resources are made available to local government where necessary. We also recommend that the Government urgently reviews ways of improving the rigour of inspections carried out by private approved inspectors. The Government agrees with the Committee that there needs to be a greater focus on the energy efficiency and sustainability requirements in Building Regulations, especially as requirements are set to become more demanding in the move towards zero carbon standards for new homes.
Alongside the changes to Part L (Conservation of Fuel and Power) Building Regulations in 2006, we instigated a substantial training programme, improved guidance, made air-tightness testing mandatory and introduced additional schemes for competent installers.
To support our activities in this area we recognise the need to gather more information to better understand the possible issues of non-compliance with Part L Building Regulations, and the effectiveness of our responses.
We are therefore undertaking a joint project with the Energy Efficiency Partnership for Homes to survey implementation of Part L 2006 for new homes. The findings[99] to date of phase 1 are promising, with improved levels of airtightness compared to earlier surveys. Phase 2 of the project will be extended to 100 homes and is scheduled to be published later this year.
Separately to this project Local Authority Building Control, which represents local building control departments, recently announced the results of a survey of 2000 projects that was carried out in response to accusations that building control officers do not enforce Part L properly in comparison with structural and fire safety requirements in the Building Regulations. The survey found that enforcement action levels for Part L were slightly lower than those for structural requirements and on a par with fire safety requirements.
It is worth noting that last year we introduced extended time limits for prosecution, and consulted on proposed changes to the building control system. To follow this up we will be putting in place a programme of reform to make the building control system work more effectively.
A key element of this programme will be moving to a risk-based approach to checking compliance, so that all building control bodies can focus on those projects considered to be at high risk of non-compliance, in particular issues relating to energy efficiency and sustainability.
The guidance, to be ready in autumn 2009, will apply to all building control bodies (approved inspectors and local authorities). It will assist in determining the number and type of inspections needed for different project types.
We are committed to making changes to improve the procedures in which the approved inspectors operate as set out in the Future of Building Control consultation[100] and we will be looking at the Approved Inspectors Regulations in more depth as we move along the programme of reform.

13. We recommend that the Government introduces much higher penalties for developers who fail to meet energy efficiency regulations in practice, and provides financial incentives for developers based on the number of properties that pass a post-completion site inspection. There was strong support in the Future of Building Control consultation for any measures to strengthen enforcement. The Government has already introduced longer time limits for prosecution and we have indicated our intention to make use of the new civil sanctions as set out in the Regulatory Enforcement and Sanctions Act 2008.
In particular, compliance and restoration notices will allow building control bodies to more easily get work brought up to the required standards. The package of new enforcement powers, which may also include stop notices and penalty notices, should act as a major deterrent to non-compliance by offering local authorities a more flexible variety of tools and approaches to deal with wilful and persistent offenders in an appropriate way.
If the new enforcement powers do not have the intended impact, the £5,000 maximum penalty (set by the Magistrate's Courts Act) may need to be reviewed as for larger firms it may no longer act as a real deterrent to wilful non-compliance.
The Government has already taken action to improve the energy efficiency of buildings through tax and other measures, including, for example, the carbon emissions reduction target obligations on energy suppliers, and the stamp duty land tax (SDLT) exemption for zero carbon new homes. The aim of SDLT exemption is to help kick-start the market for new highly efficient technologies in homes, both for the fabric of the building and in the use of microgeneration. As with all taxes, the Government will be keeping property-related tax measures under review.

Planning

18. We recommend that the Government specifies how much existing green belt land has been lost since 1997, separately from the amount that has been offset by new green belt land elsewhere, and amends planning policy and guidance to strengthen the "exceptional" test and emphasise the importance of protecting and where possible extending existing green belt boundaries. (Paragraph 67) The Government published the total area of land designated as Green Belt in statutory development plans (as at 1993) for the first time in the 1995 Planning Policy Guidance (PPG) 2: Green Belts[101]. Subsequently, figures for the total area of Green Belt land were not collected again from local authorities until 1997. It became an annual requirement to publish national statistical releases on Green Belt in 2003.
Data collected from local authorities up until 2007 related to the net total amount of land designated as Green Belt at the local planning authority level, and did not record the amount of land lost separately from the amount created, nor examine the reasons for any changes in the amount of green belt recorded compared to previous figures. This means that the data we hold for the period 1997-2007 is not retrospectively capable of analysis to reveal the amount of green belt de-designated.
Since 2007, we have required local authorities to provide a comprehensive list of the reasons for any changes to the area of Green Belt land. These changes and their reasons were presented in the Communities and Local Government's Annual Green Belt[102] statistical release published on 31 January 2008, which shows changes to the recorded area of Green Belt between 2006 and 2007. The Government is committed to continuing to collate and publish changes to green belt land on this basis, including the amount of green belt de-designated.
Importantly, the statistical release for 2007 indicates that actual changes to the extent of Green Belt land are few, with many of the recorded changes being due to local authorities using increasingly accurate measuring techniques based upon digitised data. In particular, most authorities now use geographic information systems to measure the extent of Green Belt land in their areas, as opposed to measurements based upon paper maps. Combined with this, the Ordnance Survey's positional accuracy improvement exercise has also improved the accuracy of some local authority data.
Under PPG 2, any real changes to Green Belt boundaries are only justified in exceptional circumstances. The Government does not accept the view expressed to the Committee that it is placing growing pressure on regional planning bodies or local planning authorities to review Green Belt boundaries to meet housing demand. It is for local authorities to identify the most sustainable locations to accommodate the needs of their communities for sufficient, good quality housing in a way that is consistent with the strong protections in place on some areas of land, such as Green Belt, to safeguard them from inappropriate development. Where necessary, the Secretary of State will use her powers of intervention to ensure that this happens.
For example, in the emerging east midlands regional spatial strategy (RSS), the Panel which carried out the independent examination into the draft strategy did recommend the deletion of much of the Green Belt around Nottingham and Hucknall. However, the Secretary of State was not convinced that exceptional circumstances had been demonstrated to justify the release and through her proposed changes to the draft RSS proposed that there should be a wider review covering the whole Nottingham core housing market area and Hucknall to identify the most sustainable broad locations for the anticipated growth.
The terms of reference for that review mean it would need to consider locations both within the existing built up area and elsewhere, including areas currently within the Green Belt, relating them to existing and future infrastructure provision and to the ease of access, particularly by public transport, to places of work and other facilities and services. If any proposals for deleting land from the Green Belt subsequently arose from that review, they themselves would need to demonstrate exceptional circumstances. The Government believes that this approach demonstrates the seriousness with which it takes the need to protect the Green Belt and will continue to keep the effectiveness of PPG2 under review.

14. We recommend the Government clarifies how much capacity it has identified on brownfield land for new homes, and whether its target for 60% of new housing to be built on brownfield land will be applied to the 3 million new homes to be built by 2020. Government is committed to the use of brownfield land as priority land for development and to the national target of 60 per cent of homes should be built on brownfield land. Within this national target, every region and local authority is expected to set their own targets for brownfield land use through their regional spatial strategy (RSS) and local development documents (LDDs) with the levels of available brownfield land recorded on the national land use database (NLUD).
The NLUD of previously-developed land (PDL), based on information collected in 2007, estimates there are 62,130 hectares of previously-developed land in England. This constitutes 33,600 hectares of vacant or derelict previously-developed land and 28,520 hectares in use but with potential for redevelopment.
The actual capacity of the PDL land for housing would depend on many factors, including the mix of uses, the density of development and its sustainability. Planning Policy Statement 3 (PPS3): Housing asks local planning authorities and regional planning bodies to consider sustainability issues as some brownfield sites will not necessarily be suitable for housing.
In practice, the 3 million new homes to be built by 2020 will be planned for through the regional and local spatial planning processes taking into account the national target and evidence from strategic housing land availability assessments and sustainability appraisal.
Current RSS targets for brownfield land vary regionally and sub-regionally from 50 per cent to 90 per cent, with around 98 per cent of development in London expected to be on brownfield land. At the local level, LDDs should include a local previously-developed land target having regard to the national and regional previously-developed land target.
Working with the new Homes and Communities Agency (HCA) through its 'single conversation' with local authorities we will be reassessing the range of brownfield land currently available for development and green end uses including that suitable for the development of new homes.
We will also work with the HCA to review the way that information on brownfield land is gathered and presented through the NLDU Database to ensure that information flowing from the system supports the Government's targets for regeneration and the development of new homes on brownfield land.

4. We recommend that the Government suspends the implementation of its regional spatial strategies until it has carried out and published an environmental appraisal of its house-building targets. The Planning and Compulsory Purchase Act 2004 introduced a statutory regional tier of planning into England, when the existing non-statutory regional planning guidance (RPG) was 'translated' into regional spatial strategies (RSS).
Since 2004 full revisions of the existing RSSs have been taking place and this process is now nearly completed. Only the RSSs covering the east midlands, south east, and south west have not completed, but they will do so in 2009.
This revision/implementation process is so advanced it cannot be suspended without incurring major costs and disruption to the planning and development process at both the regional and local tiers. The purpose of an RSS is to provide a broad development framework for a region over a 15 to 20 year period and it is essential that they are in place and up to date so as to deliver sustainable patterns of development. Without RSSs being in place, local planning authorities would be expected to draft up their local development documents (LDDs) in a policy vacuum, which would undermine their ability to deliver the sustainable development of their area. The Government does not propose therefore to suspend any of the RSS revisions.
The statutory planning system exists to promote sustainable patterns of development. Section 39 of the Planning and Compulsory Purchase Act 2004 contains a requirement for those responsible for preparing RSSs and LDDs in England to undertake those functions with a view to contributing to the achievement of sustainable development.
The revision of RSS is accompanied by the application of the sustainable environmental assessment (SEA) and the habitats regulation assessment (HRA), these environmental assessment regimes form an integral part of the revision of an RSS, and they inform every stage on the development of an RSS. This means that all existing RSSs, and all RSSs under going revision, have been subject to a comprehensive environmental appraisal, which ensures that the RSS sets out a planning framework for the sustainable development of a region over a 15 to 20 year time horizon.
The purpose of the SEA and HRA regimes is to act as a 'quality control tool' ensuring that the RSSs contain planning policies that will inform development on the ground which are sustainable in environmental, economic and social terms. This includes the likely impact of new development upon carbon emissions, traffic generation, biodiversity, clean water supplies and disposal of waste for example. Our planning policies on climate change expect new development to be planned to limit carbon dioxide emissions, and the SEA and HRA by informing the drafting of RSSs make sure these development plans inform patterns of development including housing development which are sustainable and have as little negative environmental impact as possible.
The process of regional planning in England is being strengthened through proposals to introduce a single regional strategy to better align social, economic and environmental factors in spatial planning at the regional tier. The proposals to create single regional strategies are currently before Parliament and set out in Clause 65 to 82 of the Local Democracy, Economic Development and Construction Bill. The decision by the Government to bring forward the creation of single regional strategies by merging RSS and regional economic strategies demonstrates the Government's commitment to regional planning and the need to maintain the momentum at the regional planning level to deliver sustainable patterns of development.

15. Given existing planning policy, we are concerned that by continuing to impose high national house-building targets and regional plans during a market downturn, the effect of Government policy is to make it impossible for local authorities to prevent planning permission being granted for development on land that is not currently needed and that would not otherwise be granted. Presented with an excess of available land, it is likely developers will build new developments on greenfield sites in preference to developing brownfield sites within the boundaries of existing settlements. We recommend that Government ensures this does not happen by revising urgently its targets and regional plans in the light of current market conditions, and by reintroducing a clear sequential test in favour of brownfield sites into planning policy. The Government does not accept this recommendation. The fundamental need remains to respond to the long-term increasing demand for homes as our population ages and grows and more people live alone. Regional plans set out housing requirements for a period of at least 15 years. Current and anticipated economic conditions point to a greater emphasis on ensuring development plans are in place to support recovery so that planning authorities can deal with new applications more quickly and efficiently.
Planning Policy Statement (PPS) 3: Housing already focuses on developing brownfield land for housing as a priority, particularly vacant and derelict sites and buildings, as well as surplus public sector land where possible.
However, the Government believes that what is important is not simply how land is defined, but how sites are managed for development. PPS3 gives planning authorities greater flexibility around the location and the kind of housing that is needed in their areas. It states in clear terms that there is no presumption that land is suitable for housing simply because it is brownfield, stressing the need for sites to be suitable for housing development, that are in suitable locations, and which will contribute to the creation of mixed and sustainable communities.
PPS3 sets out a proactive 'plan-led' approach to the supply of land for housing to help achieve the step change in housing delivery required. By 'plan-led', PPS3 requires local authorities to be much more proactive and identify sites in their plans that are suitable for housing, working with local communities and key stakeholders. Plans should identify land for housing for at least 15 years, with the first 5 years being a continuous, rolling supply of land that is ready to be built upon.
By identifying sites for housing in plans rather than relying upon speculative planning applications coming forward randomly, local authorities can provide housing in suitable locations supported by the right infrastructure provision. This will ensure local communities get the right development, in the right place, at the right time, reflecting the principles of sustainable development.
As previously mentioned PPS3 maintains the target that at least 60 per cent of new housing should be developed on brownfield land, (and current performance against this target is provisionally 75 per cent). Within that, regions and local authorities should set their own targets, taking account of local circumstances.
Local authorities need to understand what land in their area has potential for housing development and take a strategic and pro-active approach to managing their brownfield land into development, using a brownfield trajectory. The National Brownfield Strategy[103], developed by English Partnerships, and now part of the Homes and Communities Agency will help them with this work.

Sustainable housing growth: infrastructure and Funding

21. We welcome the considerable attention the Government has devoted to delivering infrastructure for sustainable communities since our last report. We are concerned, however, that the Government is relying on private developers to provide this funding, through the proposed community infrastructure levy and Section 106 funding, and that this may not be forthcoming in the current market downturn. We are also concerned that not enough priority will be given to public transport and green infrastructure. (Paragraph 79)
22. We recommend that the Government ensures that minimum standards, delivering required sustainable infrastructure, apply to all new developments, to ensure that housing is not built simply with the promise of infrastructure to come—and which may never come due to reduced profits to house-builders. We also recommend that the Government controls the proportion of the planned investment in transport infrastructure for new developments that will be devoted to roads, and ensures that the proportion to be devoted to public transport is adequate to promote sustainability and the use of low carbon transport methods. (Paragraph 80)
We welcome the Committee's recognition that progress has been made in delivering infrastructure for sustainable communities. The Government continues to be committed to ensuring that the right infrastructure is provided in a timely fashion to support housing growth.
Funding for infrastructure should be provided from a mix of mainstream funding, private sector contributions, planning obligations and top up funding such as the growth fund and community infrastructure fund. The Government recognises the importance of identifying and planning for infrastructure, including the phasing of when infrastructure is required.
Indeed, the Government remains committed to supporting infrastructure delivery and the comprehensive spending review (CSR) 2007[104] reinforces the Government's commitment to infrastructure spending.
The community infrastructure levy (CIL) is intended to provide additional resource and additional flexibility for local authorities to finance the costs of delivering the infrastructure required to support the development of their area. CIL is only one of several funding streams that an authority will be able to use to fund infrastructure. As a new local flexibility, it will be for local authorities to decide the infrastructure benefiting from CIL funding through consultation with their communities and local stakeholders.
To support the provision of infrastructure the Government is investing £1.7bn in the Thames Gateway, the growth areas, growth points and eco-towns during the CSR07 period. This includes £300m for the second round of the community infrastructure fund, a joint Communities and Local Government/ Department for Transport funding programme for transport schemes that support housing growth with priority given to bids seeking to make better provisions for sustainable methods of travel.
In addition, the consideration and funding of transport to support housing growth is largely for local authorities (through the local development framework and local transport plan process) and regions (through the regional funding allocations) to determine. However, the Government does provide best practice guidance and other more focussed support at a regional and local level but ultimately the decision on the type of transport to provide for new communities is for regional and local partners to decide.
The Government is also investing £832m in the growth areas and growth points over the CSR period to support infrastructure, and announced £605m of funding awards for 2009-11 on 10 December 2008. In a new approach to funding, and in line with the principles of the Local Government white paper, and to better align the funding system with the development of local area agreements, multi-area agreements and the local performance framework, growth funds are paid as a non-ringfenced grant giving local authorities, and their partners, the freedom in how and when they spend the funding, allowing them the flexibility to re-prioritise funding to respond to local circumstances.
Plans for the provision of green infrastructure, and the impact of growth on transport and how places are encouraging more sustainable methods of transport, are among the issues considered as part of the funding assessment process.
The Government notes the Committee's concern that, currently, not enough priority may be given to the provision of green infrastructure through the planning system. Properly planned and maintained green infrastructure can bring many health and wellbeing benefits, provide economic opportunities, attract inward investment to areas through the offer of an attractive working environment for business, reduce flooding, the urban heat island effect, and help people to value and enjoy where they live and work.
We are currently working across Government and together with nongovernmental organisations (NGOs) and regional bodies to develop policy initiatives to better align land-use and transport planning, in order to minimise the impact of housing growth both on the environment and on strategic networks, and to ensure that new communities are designed with sustainability principles in mind.
We will review national planning policy to ensure that it recognises the benefits of, and opportunities for, provision of green infrastructure in the built environment, and that appropriate weight is given to protecting or enhancing green infrastructure through the planning process.
The Government intends that all new sewers that connect to the public sewerage network should automatically be the responsibility of the statutory sewerage undertakers (e.g. water and sewerage companies) and should be built to a mandatory design and construction standard. Government recognises that both surface water management and the implementation of sustainable drainage systems (SUDs) are strongly linked to planning processes. In addition to securing greater flood resilience, greater use of SUDs will help to facilitate new surface water drainage systems being developed in a coherent and cost effective way.

Existing homes

16. We recommend that the Government investigates the potential for the redevelopment of vacant buildings to provide new homes, with an emphasis on examining how many homes this could provide, and what savings in environmental impacts this would lead to over building the same number of new homes. The National Housing and Planning Advice Unit's advice to ministers on the housing supply range to be tested by regional planning authorities last year, explained that the vacancy rates in Britain are low by international standards. If we take away second homes and transactional vacancies, the figure is near 300,000. This compares with the projection that there will be 223,000 new households forming each year until 2026 (as a result of population growth, changing patterns in age and marital status and more people choosing to live alone). Therefore, even if all long term empty properties could be brought back into use, this would not deal with the current imbalance between supply and demand. Also, areas with high concentrations of empty homes often do not correspond with areas of high housing need. Therefore, whilst this is an important issue, it is only a very small part of addressing the demand and affordability issue that this country faces.
Nevertheless, the Government remains committed to reducing the number of long term empty homes. The total number of empty homes in England has reduced by 9 per cent since 1997[105] to 697,055 dwellings or 3 per cent of the existing housing stock. Of which, 293,728 have been vacant for more than six months. The private sector accounts for 88 per cent of the total number of empty homes across England.
The Government continues to provide a range of tools that aim to encourage property owners to bring empty properties back into use, including:

since 2008, VAT charged at 5 per cent on renovation of homes empty for two years or longer. This is an extension of the existing VAT reduction introduced in Budget 2001 and which applied to homes empty for three or more years
since council tax was introduced in 1993, empty properties that are vacant and substantially unfurnished are exempt from council tax for a statutory period of six months. Once the statutory period for exemption has ended the local authority has discretion to set the discount between 50 per cent and 0 per cent.
we have strengthened the powers of local authorities to deal with empty homes where discussions and other voluntary measures with owners have failed to work, including as a last resort the use of empty dwelling management orders, to allow councils to bring homes back into use without forcing a change of ownership

The Government does not believe that more legislation is needed. Rather we want to ensure all local authorities perform as the best already do by implementing effective empty property strategies.
The Building Regulations require consequential improvements where building work is undertaken for buildings over 1000m². This means that certain improvements to the energy efficiency of the building have to be made alongside other building work. The Government is looking at these provisions, and whether they could be extended, as part of the changes to Part L of the Building Regulations to be introduced in 2010, and on which there will be a consultation shortly.

17. In our last report on housing, we expressed concern "that current rates of VAT are heavily stacked in favour of demolition, as opposed to refurbishment", and recommended that HM Treasury revises the current VAT rules concerning both new build and refurbished homes built to high environmental standards. We recommend that the Government renews its efforts at overcoming the obstacles to reforming VAT in this way. The construction and sale of new housing is VAT zero rated. Most other work to housing— including refurbishment and repairs—as well as professional services by architects, surveyors, supervisors or other consultants is VAT standard rated.
Under the European VAT agreements signed by successive governments, the UK can retain existing VAT zero rates but cannot extend these, or introduce any new ones. Equalising the VAT rate for all work to housing would therefore require us to give up the current zero rate.
EU VAT agreements do permit a reduced VAT rate for the "provision, construction renovation and alteration of housing as part of a social policy"[106]. The Government has targeted relief at areas of specific need in line with its wider policy objectives.
In respect of empty homes, for example, a reduced VAT rate of 5 per cent is applied to certain residential conversions, and the Government has widened the scope of the existing reduced rate for residential renovations and alterations by reducing the empty homes condition from three to two years.
These measures have helped bring vacant homes back into use and create new homes through better use of the UK's existing housing stock. Separately, in line with its household energy efficiency objectives, the Government has also reduced the VAT chargeable on the installation of certain renewable energy technologies and energy-saving materials, including insulation and draught stripping in houses.
The Government only applies reduced VAT rates where it believes these would provide well-targeted and cost-effective support for its policy objectives, compared to other measures, and it continues to keep the impact of VAT on different types of building work under review.

Climate change adaptation

7. We recommend the Government places much greater emphasis on adapting housing to the future impacts of climate change, both in terms of the designs for new housing and elements that can be retrofitted to existing housing stock. Critical to this will be the development of the skills and supply chains needed to support and apply innovative construction methods and design. The Government should ask the UK Green Building Council to investigate what further action is needed in this regard. In investigating these questions the UK Green Building Council should take into account the views of bodies such as the Environment Agency. (Paragraph 32) The Government agrees with the importance of addressing climate change adaptation both for new homes and the existing stock. We are working with a wide range of key stakeholders, including the UK Green Building Council, to improve our understanding of the impacts of climate change and the challenges it presents.
The work of the UK Climate Change Impacts Programme[107], led by Defra, will consider appropriate measures to deal with the future impacts of climate change and how these might be reflected in guidance, codes, standards and regulations alongside measures to reduce carbon emissions. This will include work to consider how adaptation measures can be further built into the code for sustainable homes.
Our planning policies on climate change already make clear that regional and local planning should secure new development and shape places that minimise vulnerability, and provide resilience, to future climate change, recognising the needs of all in the community. The draft consultation on a PPS on eco towns sets clear ambitions in adapting to climate change.
The Government is also planning to examine how existing tools, such as energy performance certificates and Building Regulations, can encourage the take up of opportunities to improve not only the energy efficiency of buildings but also wider sustainability issues.
Therefore, the review of Building Regulations in 2009 will consider the case for improving flood resilience in areas of high flood risk. The Government is also reviewing the provisions of Part F of the Building Regulations, which deal with ventilation, alongside the review of Part L.
Also, the Government recognises that there could be a role for voluntary codes of practice. Codes of practice could promote the benefits of action without imposing a regulatory burden or large enforcement costs. However, it is important to note that the building industry is very fragmented which may make it difficult to achieve a critical mass of people within the industries who would sign up to new codes of practice. The Government, with the Energy Saving Trust, has begun an initial exploration of these issues and has commissioned a scoping study to assess what information and advice is needed by different stakeholders in the residential market. The focus in the first instance is on energy efficiency, but the Government will consider the breadth of the scope in the light of the study's conclusions.
The Government is also exploring the potential for a consortium of stakeholders to undertake research, development, pilot demonstration, and large-scale deployment of new and better retrofitting technologies for existing buildings. This activity specifically incorporates retrofitting to adapt buildings for the impacts of future climate change, retrofitting measures aimed at achieving passive cooling of buildings during heat waves for example, as well as measures aimed at reducing carbon emissions.
The Government also sees its future approach to surface water management making an important contribution to climate change adaptation and improving flood resilience. Key linked themes within this approach include:

measures to secure widespread uptake of sustainable drainage systems
amending Section 106 of the Water Industry Act (the right to connect surface water to sewers)
surface water management plans

In particular, the Government envisages the surface water management planning approach becoming an important means both for further securing sound management of flood risk in new development and for creating a mechanism within which more challenging legacy issues within existing developments can be addressed. In connection with the latter, we would be looking to key stakeholders (including local authorities, water and sewerage companies and the Environment Agency), working within the surface water management planning context to determine the most effective strategies in particular areas.
The Government is also working to help existing home owners to adapt to climate change. This includes plans to give more help to individual home owners to protect their homes from flooding in high risk areas, and plans to set new performance standards for water fittings including WCs, dishwashers and washing machines.

New challenges, new skills

23. In the light of the dramatic financial events of the last few weeks, we recommend that the Government revisit the extent to which a target of 3 million new homes by 2020 is realistic and viable. In revising its targets, the Government should not seek to water down its environmental ambitions, but should rather seize the opportunity to strengthen them, at the same time helping the economy by investing in the skills and supply chains needed for a step-change in environmental construction standards. (Paragraph 82). The response to Recommendations 1, 2 and 3 at the beginning of this report respond to the Government's position on reviewing the target for 3 million new homes by 2020. Below we respond to the specific issue of skills in support of our housing policies.
The 14-19 diplomas are widely recognised as the most important change to the country's qualification system in a generation. Diplomas will provide an exciting, aspirational and stretching programme of learning for all young people, appealing to the most capable students preparing for the most demanding university courses, students planning to enter the workforce directly at 18 and those who are currently not well engaged with current school based provision. The new Construction and Built Environment Diploma was introduced in September 2008 and sustainability forms an important part of the curriculum. Sustainability also forms an important component in Construction Apprenticeships.
The Government takes very seriously the need to invest in skills in order to help people get back into work, retain capacity, and ensure that we are geared up for the upturn. A key priority for the Prime Minister is safeguarding and increasing apprenticeship placements and he announced on 7 January 2009 that the Government will invest £140m to create 35,000 apprenticeships in 2009-10.
On 9 January the Prime Minister also stressed the need for international co-operation and a focus on job creation as key elements in the fight against recession and re-iterated his commitment for more apprenticeships.
Other measures to support skills include:

the 'apprentice matching service' in conjunction with Construction Skills, DIUS and the LSC, to help retain apprentices with employers or place them with new ones if redundancy is being considered.
the establishment of a 'taskforce' by DIUS to consider what can be done to increase construction apprenticeship numbers ????
the development of 'National Skills Academies for Construction' on larger building sites to ensure appropriate training ????
the use of shared arrangements for apprenticeships by employers or local councils to help minimise the economic risk whilst maximising training opportunities, and
making Train to Gain more flexible for small and medium sized businesses and targeting £350m to help them get through the tougher economic climate by building the skills and expertise of their workers. Although not aimed specifically at the construction and house building industry, the new train to gain package will help the construction industry due to the large number of small businesses in the sector

Our policy that all new homes should be zero carbon from 2016 will represent a major change in the way that new homes are built and will have significant implications for the skills required by all actors in the house building process. This is one of the practical obstacles to delivery that will need to be overcome between now and 2016.
In response to the Callcutt review of house building, the Zero Carbon Hub has been established to support delivery of the policy. As one of its five workstreams, the hub will work with cross-sector partners to identify, clarify and map the key delivery issues on skills and training and to identify the organisations best placed to deliver the skills and training courses.

Halting biodiversity loss[108]

Conclusion/Recommendation Government Response

1. The Government is unlikely to meet its 2010 target to halt biodiversity loss. Although good progress has been made in some respects, a new target and a new approach will be needed to address the dramatic biodiversity loss that is occurring in England. (Paragraph 15) The Government accepts that the UK is unlikely to meet in full the EU's 2010 target to halt biodiversity loss. As Defra noted in its evidence to the Committee, that target was not realistically achievable in its entirety, but has been effective in raising awareness and galvanising activity to an extent which would not have happened without such a target. This situation applies in many other EU countries, as has been confirmed in the European Commission's recently published mid-term assessment on the implementation of the EC Biodiversity Action Plan.
The Government welcomes the Committee's acknowledgement of good progress in some areas (e.g. protected sites, where the proportion of SSSIs in favourable or recovering condition has increased from 56% in 2003 to 84.7% at the end of 2008).
The England Biodiversity Strategy indicators updated in November 2008 offered further evidence. The eight indicators covered public engagement in biodiversity issues, nutrient levels in rivers and lakes, salmon stocks, and the abundance of species sensitive to climate change. For the six indicators where there was sufficient data to make a judgement, all showed improving trends, including an improvement since 2000 in the quality of rivers and salmon stocks They also showed an increase in the number of people volunteering for wildlife and visiting nature reserves and woodlands.
We recognise, however, that the current situation offers no grounds for complacency and that more needs to be done. The Government also agrees that there needs to be a successor to the current 2010 target. We expect this to be agreed internationally, under the framework of the Convention on Biological Diversity (CBD). The way we intend to contribute to this process is summarised in Section 3 below.

2. Halting biodiversity loss must not be the end-point for biodiversity conservation in England. We should go beyond this to enable growth in biodiversity into the future. Achieving this will require leadership, effective policies and delivery all firmly rooted in the scientific evidence. (Paragraph 16) The Government has already gone beyond halting biodiversity loss, achieving increases in some key areas.
We have set quantitative targets for the recovery of priority habitats and species, which go beyond halting their loss to restoring and expanding priority habitats and increasing the populations of priority species. Details can be found at http://www.ukbap-reporting.org.uk/outcomes/targets.asp

3. To ensure that momentum is not lost after 2010 the Government should adopt a new target and vision for halting and reversing biodiversity loss by 2020. This needs to be accompanied by specific, measurable and achievable targets for habitats and species. (Paragraph 17) The Government strongly supports the need to adopt a new target to focus activity after 2010. A successor to the current 2010 target will be negotiated through the CBD, probably with additional interpretation at regional and national levels. It is likely to look at least to 2020, and perhaps further ahead.
We are committed to working with national, EU and international partners to identify and agree a successor target that is both realistic and challenging. A number of key meetings are being planned internationally in the run-up to the CBD Conference of the Parties in 2010, and the UK is considering hosting an event as part of this programme if it can add real value to the process.
Individual habitat and species targets are already in place in the UK via our Biodiversity Action Plan (BAP); we will assess the continuing relevance of these in the context of the successor to the current 2010 target.
In broad terms, the Government believes that the existing suite of indicators, which have been developed since the 2010 target was adopted, should continue to provide the headline measures of progress towards any new target. These indicators are underpinned by the more detailed monitoring arrangements in place under BAP and for activities such as SSSI PSA target delivery. Abandoning current monitoring frameworks and replacing them with something new would risk being a major and unnecessary distraction from delivery.

4. To halt biodiversity loss, to reverse historic losses, and to make biodiversity more robust in the face of future pressures, an ecosystem approach will be required. We therefore welcome the Government's plan to conduct an ecosystem assessment for England. The Government must ensure that this is completed and published at the earliest opportunity. In addition to showing how an ecosystem approach can be delivered, the assessment should consider:

the protection of biodiversity outside protected areas, particularly on small sites that are not protected by statutory environmental impact assessment;
how agri-environment schemes can deliver habitat creation and enhancement, possibly through a more targeted approach, and whether wider agricultural support mechanisms are aligned with an ecosystems approach;
how development can lead to gains in biodiversity and ecosystem services (such as through compensation for biodiversity loss and the provision of green infrastructure), and whether development policies are aligned with the ecosystems approach;
and scenarios for a future vision of the natural environment linked to a new target for halting and reversing biodiversity loss. (Paragraph 22)
The National Ecosystem Assessment is not of itself designed to achieve all the things the Committee's report asks of it but, together with the G8 Environment Ministers' initiative on The Economics of Ecosystems and Biodiversity (TEEB), it will do much to stimulate and facilitate the action required.
The National Ecosystem Assessment will consider terrestrial, freshwater and marine ecosystems and biodiversity across the UK, and will not be restricted simply to protected areas. It will consider a range of pressures on the natural environment in developing future scenarios, and possible policy responses to issues that arise from this analysis. The conservation and enhancement of biodiversity may be one such area highlighted from the analysis for further study, but it is too early to predict at this stage.
The National Ecosystem Assessment will develop scenarios for possible future states of the natural environment and ecosystem services. This work will be done in parallel with work to define a new, post 2010, target for biodiversity, and we will ensure that work on the two projects is mutually informative and also takes into account the wide variety of other work currently being conducted in this area, including the TEEB study, which will report over a similar timescale.
TEEB is now being taken forward in a CBD framework under the leadership of Pavan Sukhdev. Phase 1 was warmly welcomed at the CBD conference in Bonn in May 2008, and the second and final stage, due to report to the 10th CBD conference in Nagoya in October 2010, is well under way. The UK has provided £100k, and sits on the steering committee, for Phase 2. In view of the potential importance of this work, the Secretary of State for Environment, Food and Rural Affairs hosted an inter-Departmental seminar, led by Pavan Sukhdev, in November 2008 and is following it up personally to ensure that the key messages are registered in the relevant international fora, as well as domestically.
The role of agriculture and land management in the current and future provision of ecosystem services will be covered in the National Ecosystem Assessment. Additionally, a further Defra-sponsored research project is currently assessing the provision of ecosystem services through the Environmental Stewardship scheme. This will report shortly.
Environmental Stewardship (ES) already delivers widespread benefits for biodiversity through habitat creation, enhancement and protection. Entry Level Stewardship (ELS), open to all farmers in England, supports basic levels of good environmental practice through simple land management techniques. Higher Level Stewardship (HLS) uses a map-based targeting system to focus the environmental benefits of HLS delivery in priority geographic areas where environmental outcomes are likely to be most valuable. The targeting system brings together information on, and priorities for, biodiversity, maintenance and enhancement of landscape quality and character, natural resource protection, public access and protection of the historic environment to form multi-objective target areas covering roughly a third of England (and therefore much more of the country than the protected areas network). Important features and opportunities outside these target areas can also be included through regional HLS themes. ES as a whole, and its predecessor schemes, are under-pinned by basic cross compliance measures requiring good agricultural environmental condition.
In addition, Defra and CLG are co-sponsoring a Land Use Futures Foresight project, which is investigating the many uses to which we put our land now and in the future. Working closely with this project, trends in development and land use will also be considered as part of the National Ecosystem Assessment.
The latest results from the Countryside Survey, published in November 2008, provide an additional source of information on the status of biodiversity in the wider countryside, including small sites and habitat fragments that do not have statutory protection. The Government is also investing in both the National Biodiversity Network (£674k between 2008 and 2011) and Local Record Centres (£1.17m over the same period), specifically in order to improve the availability of information on biodiversity outside protected areas.

5. Defra and its delivery bodies are working to halt biodiversity loss. To be able to achieve this, and also to deliver the ecosystems approach needed to protect biodiversity into the future, it is crucial that all departments work in concert. Public Service Agreement 28 might facilitate cross-departmental work on biodiversity. However, we are concerned that a number of policies indicate the continued failure of departments to consider biodiversity impacts. In particular, we note that although the Department for Communities and Local Government is a formal delivery partner for PSA 28, it appears to have failed to transpose this responsibility into its Departmental Strategic Objectives. Without appropriate mitigation activities being taken, some of its policies, such as brownfield development and housing targets, might contribute to biodiversity loss. Its Departmental Strategic Objectives must be updated and it must align its policies with the ecosystem approach. Another example is the failure of the Department for Business, Enterprise and Regulatory Reform's renewable energy strategy consultation document to address the potential impacts of bioenergy policy. (Paragraph 29) The Government agrees that halting and then reversing biodiversity loss is a cross-cutting issue and that an integrated approach, involving the active participation of all relevant Departments, is needed if we are to succeed.
The new PSA framework provides a powerful opportunity for relevant Government Departments to work together to deliver natural environment outcomes. PSA28 is a cross-government PSA, and CLG, DfT, BERR and DECC are all delivery partners and are represented on the PSA delivery board. This is facilitating constructive joined-up working within Government as well as helping ensure that natural environment considerations are fully reflected in policies that impact on the natural environment such as housing and transport. As a result, we have already seen encouraging evidence of this new system facilitating better engagement on cross-cutting issues e.g. eco-towns.
CLG has no plans to change its planning Departmental Strategic Objective (DSO). However as a delivery partner for the Natural Environment PSA, CLG shares responsibility for delivering this PSA. The PSA Delivery Board plays a crucial role in holding CLG and other delivery partners to account for their contribution to the PSA. Bearing in mind the importance of CLG's contribution, Defra and CLG are about to undertake a short bilateral review of CLG's role as a delivery partner for PSA 28, exploring where synergies and tensions exist, including on biodiversity. This review will report in Spring 2009.
The Housing Green Paper 'Homes for the future: more affordable, more sustainable' (published last July), sets out how the Government aims to ensure that its house building targets meet the challenges posed by climate change and the need to protect the environment. We recognise that new development brings environmental pressures. However, planned strategic growth rather than incremental development should allow environmental pressures to be planned for, accommodated and mitigated at a strategic land site level.
Planning Policy Statement 3 (PPS3) prioritises the use of brownfield land for development, as this can reduce the pressure on 'green field' sites. However, one of the overarching objectives of planning policy is to ensure housing is provided in suitable locations. PPS3 states in clear terms that there is no presumption that land is suitable for housing simply because it is brownfield. At the local level, Local Development Documents should set out a strategy for the planned location of new housing which contributes to the achievement of sustainable development. Local Planning Authorities should, working with stakeholders, set out the criteria to be used for identifying broad locations and specific sites taking into account any environmental constraints such as the need to protect natural resources, including biodiversity.
More generally, PPS9 (Biodiversity and Nature Conservation) contains policies to protect from development those brownfield sites which have significant biodiversity interest, as well as stating that local planning authorities should maximise the opportunities for enhancing biodiversity in development proposals.
DECC was created as a new Department in October 2008 to bring together the Government's responsibilities for energy and climate change, to give an even greater focus to solving the twin challenges of climate change and ensuring that energy supply is affordable, secure and sustainable. The Department will work in full collaboration with other Departments, including Defra in relation to biodiversity. On the specific point the Committee raised on bioenergy and the Renewable Energy Strategy, the consultation document issued in June 2008 referred to the importance of ensuring that biomass production was sustainable, and sought views on measures to ensure the sustainability of biomass supply, both domestically produced and imported. The Department has commissioned studies to extend the evidence on environmental implications of bioenergy and the availability of sustainable supplies, and is working with Defra to ensure that the large increase in renewable energy needed to meet the UK's obligations under the EU Renewable Energy Directive can be achieved without compromising environmental protection. The Directive, which was agreed by the European Parliament in December 2008, contains sustainability standards for biofuels for transport, and a further process to determine the potential extension of standards to all biomass used for energy production.

6. Delivering an ecosystem approach will rely to a large extent on regional and local government, particularly when it comes to planning. A number of recent changes might facilitate this, such as the production of single regional strategies, which could provide for the detailed mapping of biodiversity in a region and for opportunities for its protection and enhancement. (Paragraph 32) The Government agrees with the Committee about the importance of regional and local government in delivering a healthy natural environment. The integrated approach to regional strategies described in Section 7 below will help them to achieve this.
In the context of PSA 28, Natural England and the Environment Agency, working with the Forestry Commission and Government Offices, are leading a review of the state of the regional evidence base across the nine English regions, so that they will be in a position to use environmental evidence as effectively as possible to inform and influence the new integrated regional strategies.

7. However, some aspects of the Sub-National Review might undermine an ecosystems approach. In particular we are concerned that the Regional Development Agencies responsible for drawing up the single regional strategies (as well as acting as the regional planning bodies), will have an overriding focus on economic growth as their performance will be based on a single economic growth indicator. There is also a considerable risk that sustainable development issues will not carry much weight in the decision making process given the absence of ecosystem service information at regional and local scales. (Paragraph 33) The Government consulted on proposals announced by the Sub-National Review in spring 2008. In the light of the consultation feedback, Government has decided to refine its plans for regional strategy and has set this out in the Government response to Prosperous Places: Taking Forward the Review of Sub-National Economic Development (published in November 2008) as well as part 5 of the Local Democracy, Economic Development and Construction Bill introduced in December 2008. Accordingly, the revised proposal is to give joint responsibility to both the RDA and a local authorities' Leaders Board, for regional strategy preparation, implementation and monitoring. Both bodies will be the 'responsible regional authorities', thus removing the need to designate a regional planning body.
In taking forward regional strategy, the RDA and Leaders' Board will be required to engage with stakeholders, including those with environmental expertise.
The Bill sets out the purpose of regional strategy as sustainable economic growth, development and the use of land and stipulates that it must include policies designed to contribute to the mitigation of, and adaptation to, climate change. Sustainable economic growth is defined as economic growth that can be sustained and is within environmental limits, but also enhances the environment and social welfare, and avoids greater extremes in future economic cycles. In addition, the bodies responsible for a regional strategy must carry out their responsibility with the objective of contributing to the achievement of sustainable development. Government intends to provide further guidance.
Defra will be working with stakeholders over the next few months to develop a single sustainable development framework and an appraisal process which will form part of the guidance on preparing regional strategies.

8. We are concerned that Planning Policy Statement 9 and the biodiversity duty have not adequately protected or enhanced biodiversity and that such opportunities continue to be missed. (Paragraph 37) The biodiversity duty is still relatively new, but Defra is undertaking a review of its take-up and effectiveness to date. Tenders for this contract have been received and the final report is due for publication in Autumn 2009. In the light of the results of that review, we will consider what if any further action is needed.
The Government recognises that there is a widespread concern among the biodiversity community that PPS9 includes appropriate policies but fails to deliver adequately on the ground. This is one of the issues that the bilateral review between Defra and CLG (being undertaken through the PSA 28 Delivery Board, and referred to in section 5 above) will need to address.

9. We recommend that the ecosystem assessment:

assesses whether the single regional strategies follow the ecosystems approach and adequately provide for biodiversity protection and enhancement;
assesses whether, when combined, the single regional strategies will provide the England-wide network required for biodiversity;
describes practically how an ecosystem approach can be delivered at regional and local scales; and
demonstrates the value of ecosystem services at regional and local scales. (Paragraph 37)
The National Ecosystem Assessment will be complete before the single regional strategies have been finalised. However, Defra has commissioned several pieces of research (details of which can be found on its website) that explore the opportunities and challenges of applying an ecosystems approach at different spatial scales. Additionally, through the Government Office network, regions are now sharing knowledge and best practice on the valuation of ecosystem services and embedding an ecosystems approach at regional and local levels. We also anticipate that, through case studies, the National Ecosystem Assessment will investigate the value of a range of ecosystem services at various spatial scales to support its overall assessment of the current state of provision of these services nationally.

10. In the mean-time other policies and development risk causing further biodiversity loss. It is critically important that all levels of government ensure that all policies are reviewed to align them with an ecosystems approach. (Paragraph 38) In December 2007, Defra published "Securing a healthy natural environment: An action plan for embedding an ecosystems approach". This contains a series of actions which constitute an ambitious programme of work to deliver a decisive shift towards an ecosystems approach to policy making and delivery. It provides the basis for securing wider engagement across government, with actions for Defra, CLG, DfT, DfID and BERR, and further actions supporting the embedding of an ecosystems approach in the regions.
The PSA 28 Delivery Board will also play an important role in ensuring that the natural environment is fully taken into account in key policies across Government. And the national ecosystem assessment will give further impetus to this work.

11. The Government has a clear moral and legal duty to help protect the biodiversity of the UK Overseas Territories and Crown Dependencies, where it is the eleventh hour for many species. We are extremely concerned that recommendations that we have made in the past that would have helped to protect the environment of the Overseas Territories have been ignored. The Government must:

adopt a truly joined-up approach to environmental protection the UKOTs and Crown Dependencies, by bringing together all relevant departments including the FCO, MoJ, DfID, Defra, DCMS and MoD with the governments of the UKOTs;
make better use of the Inter-Departmental Group on biodiversity to provide more oversight and support for the development and implementation of effective environmental protection policy in the UKOTs, and expand the Group to include other relevant departments;
have Defra assume joint responsibility for the UKOTs, and reflect this in future spending settlements; and
address the dire lack of funds and information for environmental protection in the UKOTs. An ecosystem assessment should be conducted in partnership with each UKOT in order to provide the baseline environmental data required and to outline the effective response options needed to halt biodiversity loss. (Paragraph 46)

12. With leadership, and a relatively small sum of money, the incredible biodiversity found in our overseas territories can be safeguarded into the future. One of the most important contributions that the Government could make to slowing the catastrophic global biodiversity loss currently occurring would be to accept its responsibilities and to provide more support for the UK Overseas Territories in this area. (Paragraph 47)
The Government agrees that more effective and better integrated support is needed for the UK's Overseas Territories in order to halt the loss of their biodiversity. Although environmental management of the Overseas Territories has been devolved to the individual Territories, we recognise that many of the Territories do not have the necessary financial or personnel capacity to ensure the protection and safeguarding of the local environment and therefore need help.
Since the submission of its evidence to the Committee, Defra has committed a further £200k to biodiversity in the Overseas Territories in 2008/09, to fund baseline survey work, enhance research capacity in the Territories, and support small conservation projects identified as priorities by Territory governments. This adds to the extra funding Defra had already committed for 2008/09 through the Flagship Species Fund (£50k), the added priority given to the Overseas Territories under the Darwin Initiative (with results of the latest round expected in February 2009), the extension of Defra's commitment to give extra support through the Agreement on the Conservation of Albatrosses and Petrels (£20k), and Defra's continuing funding through JNCC (£200k in 2008/09).
Support from FCO and DfID continues through the Overseas Territories Environment Programme (OTEP). OTEP supports the implementation of the Environment Charters, and environmental management more generally, in the UK Overseas Territories, but has focused on biodiversity conservation given the Territories' significance for biodiversity. FCO and DfID have each committed £3m to OTEP for the period 2004-10.
The Inter-Departmental Ministerial Group on biodiversity (IDMGb) comprises Ministers from DEFRA, FCO and DfID and the chair of the Joint Nature Conservation Committee (JNCC); in addition, Ministers from other Government Departments can be invited for specific matters. While the Group's remit covers international biodiversity as a whole, biodiversity conservation in the Overseas Territories is currently its main focus.
Through the IDMGb the Government is developing a strategy for biodiversity protection in the Overseas Territories, building on a recent assessment of priorities for biodiversity conservation action carried out by JNCC and a similar assessment carried out by RSPB. JNCC will produce this strategy and the IDMGb has asked them to report by the end of May. The strategy will need to be underpinned by urgent analysis of the costs—and benefits—it would bring, together with confirmation of priorities for immediate action.
The IDMGb will also consider the potential to tap into other funding streams—both governmental and non-governmental—to help support biodiversity conservation in the Overseas Territories. DfID has provided JNCC with funding (£35k) to investigate alternative sources of funding for environmental management in the Overseas Territories. This is expected to conclude in the summer. But it is important to stress that funding is not the only issue which needs to be addressed. Capacity for carrying out projects in many of the Territories is very limited owing to their small populations and consequent lack of relevant expertise and/or knowledge. So there needs to be an holistic approach for each of the Territories, taking account of their diversity, needs, wishes and own identified priorities, as well as the availability of funding.
There is a need for more comprehensive information on the status of ecosystems, as well as current and future threats, in the Overseas Territories. Baseline environmental information is available for all the Territories but the scope and quality of this information is variable, and in many cases it falls short of a full ecosystem assessment. Data on the marine environment is especially poor. The most important gaps in data have been identified as part of JNCC's recent assessment of priorities for conservation action in the Overseas Territories. This assessment will guide future work.

Environmental Labelling[109]

Conclusion/Recommendation Government Response

The Government's role

1. The Government needs to put more resources into promoting better environmental labelling. The Government should encourage the development of a sector-based universal scheme comparable to those emerging in food labelling that can incorporate a wealth of information in a simple and instantly understandable label for consumers. (Paragraph 10) The Government is grateful for this proposal. We see the attractions of a framework that would translate into simple and easily understandable labelling, sharing a recognisable common 'look'. And there is evidence emerging from research which Defra and others have been doing over the last year that clear and easy-to-understand information on green issues, if it is direct and to the point, does hold appeal for consumers.
The biggest challenge in moving the market in this direction is the practical complexity. The Committee's example of food labelling—the 'traffic light' system—is not without its complications, but is relatively straightforward compared with the range of products and the range of issues that a broader environmental labelling framework would have to address.

The food example takes a single functional parameter (human nutrition); divides it among major components of the product function (fat, carbohydrate, etc); and expresses those against an accepted single measure of each those components (the 'guideline daily amounts'). And while food products vary enormously in type, they share the same basic components; and the methodology for measuring them, at the level of an individual product, are common and standardised.
By contrast, the environmental performance of products involves many parameters. There are potentially many environmental impacts associated with a single product type. The relative importance of these impacts may often be unclear, or not commonly agreed, and may involve trade-offs across the life cycle. And in very many cases there is no common or standardised methodology for measuring an impact at the product level or expressing it against a common benchmark.
The case of the major energy-using products, covered by the EU's 'A-G' energy labelling regime, is a successful example of an environmental labelling, but it is telling that it operates in a much simpler setting than would be possible for most types of product. The key impact parameter is energy in use and there are standard methods for measuring a product's performance and declaring it. However, even in this apparently more simple case, the work involved in establishing and agreeing the necessary standards and benchmarks has been intensive and long-running.

Sitting alongside these challenges of complexity is the often-stated wish of consumers for simplicity in the information that is presented to them. Achieving this is even more of a challenge when most consumers will be judging any environmental information alongside other parameters. Issues about the cost and performance of products loom largest for most consumers; and increasingly social and ethical issues are also competing with environmental ones for consumers' attention. All of this means that it would require extensive and extremely careful management to turn all the analysis and data behind a broad-based environmental scheme into an effective and useful label that actually works in the consumer market.
The Government would like to consider the practicalities of environmental labelling of the kind proposed and to build up better evidence of what might work. Defra is developing ideas for some feasibility work, potentially focussing on food as a pilot area. This would help to test some practical options against the latest evidence on consumer perceptions and business experience—and also allow some assessment of potential costs.

2. The Government should be prepared to enforce such a labelling scheme by statute although we accept that the ideal would be for manufacturers and retailers themselves to introduce a clear and robust scheme without the need for government enforcement. (Paragraph 10) The Government believes that the aspiration of developing a common approach to labelling is certainly worth pursuing with manufacturers and retailers. We will stimulate that debate as part of Defra's ongoing work on green labelling and marketing, mentioned above, and in appropriate forums at EU level.
It is important to note that a further consideration in the practicality of a national-level labelling scheme is how it could operate at the end of an increasingly globalised supply chain—and, more specifically, within the rules of the Single Market. There would therefore be problems for practical effectiveness, and also for trade, in attempting to legislate for a comprehensive cross-sectoral scheme for products placed on the UK market.
Aside from this question of legislation specific to an individual label, it is worth noting that there is a general framework of legislation which is relevant to this area, which includes The Consumer Protection from Unfair Trading Regulations 2008 and The Sale and Supply of Goods to Consumers Regulations 2002. As the Committee is aware, in the broader field of product advertising the Advertising Standards Authority (ASA) independently administers rules laid out in the advertising codes and oversees a self-regulatory system.

3. The Government should make sure that environmental labels are backed up by an appropriate set of standards and criteria, covering issues like independent monitoring and verification of claims, so that consumers can have confidence in them. The Government must also ensure that the labels will also make a difference to the producers who use them. (Paragraph 12) The Government agrees that robust standards, criteria and methodologies are essential to underpin good quality labelling—as they are for the whole process of raising the performance of products placed on the market. This is a core theme in Defra's sustainable consumption and production (SCP) programme, and runs through all of its SCP projects which relate to products.
The Government also fully agrees that good labelling needs to make a difference for businesses—giving them an incentive to improve their products and the market recognition for doing so. Defra plans to include principles on verification, substantiation and robustness in its current exercise on guidance for business about green claims and marketing (please see the response to recommendation 15 below).

Focusing on the most relevant labels

4. It is crucial for labels to reflect the most important environmental priorities, both in terms of consumer behaviour and the environmental priorities identified for each sector. So if, for instance, a 'traffic light' or 'petal' scheme was adopted and embedded carbon was felt to be the most important element, in each sector this could make up a larger or more prominent portion of the label. (Paragraph 15) The Government agrees with this conclusion (subject to our comments above about the proposal for a new, wide-ranging scheme).

5. As in food labelling, it is important that a sector-based universal labelling scheme is developed and that clarity and simplicity are not lost in a plethora of different single issue labels and complex information. Equally we must avoid the situation, as in the Ecolabel, where the simplicity is so great that meaningful comparison becomes difficult. (Paragraph 19) The Government agrees with the conclusion about clarity and simplicity (subject again to our comments above about the proposal for a new, wide-ranging scheme).
The example of the EU ecolabel illustrates a conundrum for environmental labelling more widely. The apparent simplicity of the label as it applies to products mentioned in the report, like paint or household cleaning products, conceals the complexity and rigour of the criteria that are used—which can run to more 20 pages of detailed specifications. This is an inherent problem particularly for voluntary 'award' labels. Consumer research consistently indicates a desire for a quick and simple message, but a label of high environmental performance may nonetheless struggle to get its message recognised (please see also the response to recommendation 1 above).

6. The extension of the EU Ecolabel's coverage will provide a vital test of consumer willingness to accept wide-ranging generic labels. While we have real doubts about the wisdom of such 'one-size-fits-all' generic labels, the Government should support the continuing development of the label to test its viability fully, including promotion to raise the profile of the label. (Paragraph 21)
7. The Government is right to recognise the difficulties of developing a 'one-size-fits-all' label but this should not prevent it from making progress on making environmental labelling clearer or from making progress with a sector-based universal scheme. The Government should, after a suitable period of time has elapsed, review the revised EU Ecolabel to determine whether it is working any better. The Government may need to go back to the EU with proposals for further revisions that are more flexible and informative, based on the 'traffic light' or 'petal' model, and which might attract more support from consumers. This may require a sectoral approach. (Paragraph 22)
The Government remains committed to the development of the EU ecolabelling scheme and over the last year we have strengthened the arrangements for running the scheme in the UK market.
Reforms to the scheme have been agreed at EU level and a revised governing Regulation will come into effect later this year. These reforms should improve the criteria-setting process and the links with other product policies, especially green public procurement, which will have a positive effect in stimulating higher environmental standards in some key product markets. It is less certain whether the changes will strengthen the appeal of the label as a communication and marketing tool. The Government will continue to work for improvements within the EU framework, leading in due course to a strong UK input to the next formal review of the Regulation (scheduled for approximately five years' time).

8. As in the white goods market, environmental labels are particularly effective when consumers do not have to pay a premium for higher standards. They may also be more effective if they can be made to coincide with a financial benefit to the consumer. The Government should examine the scope for strengthening the effectiveness of environmental labelling through fiscal measures. (Paragraph 26) The Government agrees with the Committee about the way that environmental labelling can reinforce messages about direct benefits to the consumer, for example through lower costs in energy, fuel or water consumption. The case of Vehicle Excise Duty and car labelling is a good example of where, in the right circumstances, the message can be further reinforced by direct linkage with a fiscal message. The Government will consider further opportunities. For example, over the last year it has been working actively at EU level to seek flexibility on the level of VAT chargeable on energy-efficient products.

9. Labels are more likely to influence a purchasing decision if the customer has prior awareness and understanding of the label. Where the Government supports a labelling scheme as part of its sustainable consumption strategy, it must actively promote and explain the label to consumers, using publicity to raise their awareness and understanding of labels before they make decisions on purchases. How information on, for example carbon, is presented in marketing materials and advertising is important. The Government should examine whether there is a case for regulating how information is displayed to ensure it is prominent and consistent with a sector-based universal labelling scheme. The way information is presented must be underpinned by standards to ensure the information is displayed prominently and in a way that allows different products to be compared easily and that ensures that environmental information is presented consistently across all forms of marketing media. (Paragraph 29) The Government agrees that awareness of the labelling schemes that it directly supports needs to be properly promoted, to assist consumers in making good use of the information provided. That is considerably easier for schemes which are a legal requirement for certain types of product and which are therefore widely visible (as with the EU label for energy-using products, for example) than for 'award' schemes which are voluntary and more rarely seen (as with the EU ecolabel).
We will be looking at the issue of how—in areas where there are these 'official' labels, underpinned by robust standards—other related information is displayed in marketing material. Some relevant research is now in progress and we will consider if guidance or other measures need to be developed with business as part of Defra's current work on green claims and marketing (which is described further below).

Ensuring quality

10. The Government has a role to play in policing the use of environmental labels and intervening directly to remove those found to be inaccurate or misleading. It should provide Trading Standards and the ASA with the training, resources, powers and sanctions required to review all instances of dubious environmental claims. The Government should issue guidance to both independent and business-initiated schemes, to ensure that appropriate levels of accuracy and relevance are adopted by all labelling schemes. (Paragraph 30) The Government is acting on a number of fronts which should help in the areas the Committee mentions.

Defra is currently running a project to revise, update and extend its guidance on green claims and marketing to help business raise the quality of information used in advertising and on products themselves (self-declared claims). This work is being done with the active involvement of key players and professional bodies in the marketing and advertising industry, as well as the ASA and the local authority coordinating body.
The Defra work will also look at what additional guidance may be needed to ensure good practice is followed in formal, non-regulatory labelling schemes ('third-party' and 'sectoral'). This would be based on the relevant international (ISO) standards for such schemes.
Defra plans to consult shortly on options to strengthen the arrangements for ensuring compliance with the regulatory regime for EU energy labelling and minimum standards.

11. The Government should require certification schemes to make public information explaining the structures, standards and methods behind the label; ensuring that consumers can have confidence in the audit and inspection processes that underpin the claims a label makes. The Government should also set standards and guidelines for the levels and categories of information to be provided by any business that seeks to promote its operations and products through a third-party labelling scheme. (Paragraph 32) The Government agrees that third-party and sectoral schemes should make such information available. Indeed, it is very much in the interests of scheme practitioners to do so, in order to build the trust, recognition and take-up that they seek. We are not aware of any serious shortcomings, but will review what may be needed and if necessary develop guidance as part of Defra's ongoing work on green claims and marketing.

12. Labels need to be regularly reviewed and adapted to ensure they keep up with changes in the market and adequately reflect consumer concerns. We welcome the Government's involvement in remodelling the vehicle emissions label, and we urge it to maintain a programme of regular reviews across its own labelling portfolio. The Government should also identify areas where non-government labels are in need of review, and should place pressure on the label owners to undertake regular reviews. (Paragraph 33) In the case of the 'portfolio' of government-level labelling schemes, and specifically in the area of the EU energy label mentioned in the Committee's report, the Government has intensified its efforts over the last year to achieve ambitious revisions to the benchmark levels, in negotiations under the EU Eco-design Directive.
In the case of third-party and sectoral schemes, again we are not aware of any serious shortcomings. However, we will review what may be needed and if necessary develop guidance as part of Defra's ongoing work on green claims and marketing.

13. The Government's priority should be to resolve shortcomings in existing labelling schemes, rather than introducing extra labels to compensate for deficiencies. (Paragraph 34) The Government agrees with this principle. As mentioned above, it has led a strong drive to achieve an ambitious revision of standards in the area highlighted by the Committee, the EU energy labelling regime.
On the example of the Energy Saving Trust's 'ESR' label (quoted in paragraph 34 of the Committee's report) it is worth pointing out that the Trust's voluntary scheme does offer added value beyond what the mandatory EU label can provide. It covers a considerably wider range of product types than the energy label; and it covers a wider range of performance factors.

Engaging business

14. Effective environmental labelling must be part of a wider partnership between government, consumers and business if the goal of a more sustainable economy is to be achieved. Arguments about the accessibility of labels must not lead to an over simplification or lowest common denominator effect; the aim should always be to raise standards. (Paragraph 37)
15. In many ways, environmental labelling's real potential lies not in changing consumer behaviour, but in changing business behaviour and thereby improving the sustainability of the manufacturing process and the products available to the consumer. In improving the overall environmental performance of the economy, the Government must work more closely with business to show how environmental labelling can help them to drive changes in their business and in their supply chains. In order to do this effectively, labels should be underpinned by proper systems for analysis, audit and accreditation. (Paragraph 40)
The Government agrees that the role of business in raising product standards is crucial. We have set out our views on this more fully in the introduction to this response,[110] as we consider it is at the heart of the issue; and we very much welcome the attention which the Committee has given to the theme in this section of its report.
On the question of working with business on positives uses of labelling, Defra has recently been running workshops with business and marketing experts to understand the drivers behind the use and choice of environmental communication, including labels; and how this relates to what we know about consumer perceptions, which are coloured by habits and experiences, wider market and societal influences, and perceptions about individual 'brands'. We are hopeful that, as part of the exercise on green claims guidance, this evidence can be used to demonstrate the value to business of using robust environmental information in its communication with supply chains, business customers and household consumers.
On the question of the systems and methods which are needed to underpin a good standard of environmental labelling (and indeed to underpin most other product-related measures) the Government considers it can play an important role in helping to get the necessary structures and methodologies in place. Again, our views on this are included in the introduction.[111] A good example of this kind of contribution is the support we have given to help put in place a robust methodology for assessing the carbon footprint of goods and services (PAS 2050).

16. Product road-mapping is an important innovation in efforts to improve the environmental impact of supply chains. The Government has a vital role to play in this process. We welcome the Government's current pilots on product road-mapping and we urge it to extend this work to further product ranges as soon as this is feasible. (Paragraph 43)
17. We note the effectiveness of voluntary initiatives in driving up environmental standards in industry and we are encouraged that the Government is involved in these processes. (Paragraph 44)
The Government welcomes these conclusions and the support for its approach on product roadmaps and other voluntary initiatives to raise product standards. One of the aims of our work on the 'roadmaps' is to encourage more sectors and businesses to adopt this kind of approach on their own initiative; and we will continue to promote this way of working.

18. The Government should seek to establish an agreement between major retailers, encouraging them to make more information on major environmental labels available to consumers, both in store and online. In particular, retailers should be encouraged to provide this information close to where the products are found (for example, in the aisles themselves), rather than solely at information desks or on request. (Paragraph 47) The Government is grateful for this interesting proposal and we will, as part of the regular dialogue with major retailers, discuss what more could be done nationally to raise awareness of reliable third-party or sectoral labelling schemes which can support consumer choice about sustainable products and behaviours.
It is worth noting that the European Commission has, as part of the SCP Action Plan it adopted in July 2008, recently launched a Retail Forum, the main goals of which are to achieve greater availability of greener products in the shops; provide better information to consumers; promote more sustainable consumption; and build up the information needed to evaluate environmentally sound products. This seems to us very much in tune with the Committee's thinking and we will encourage European-wide collaboration through this new channel.

19. It is unacceptable that certain car dealerships are still failing to display mandatory EU information on vehicle performance. The Government must ensure that trading standards have the training, resources, powers and sanctions necessary to tackle failures of this kind in every aspect of compulsory product labelling. (Paragraph 50) The LowCVP dealer survey for 2008 showed that the voluntary colour-coded label for new cars was on display in 91% of showrooms (compared with the finding of 86% in the 2007 survey). This is a clear indication that the label has strong support throughout the industry and that use of the label is still increasing. Given this high level of take-up by dealers of the very informative voluntary label, it is likely that there is even higher compliance with the statutory requirement to display basic fuel economy information.
On the question of mechanisms for monitoring and enforcement of compliance with other forms of mandatory labelling, Defra is (as noted in the response to recommendation 10 above) shortly to consult on options to strengthen the arrangements for the regulatory regime for EU energy labelling and minimum standards.

Carbon labelling

20. Carbon labelling cannot account for all environmental impacts or be a universal environmental label. But the value of the carbon label will be increasingly important as consumers' awareness and knowledge of embedded carbon grows. Embedded carbon labelling is a form of environmental label that can be applied to all products and all sectors, and may be the single most important measure, given the challenge we face in decarbonising the economy. It is necessary to support efforts to raise an individual's awareness of their overall consumption of carbon, like the Act on CO2 campaign, and to support the goal of reducing the carbon intensity of products. (Paragraph 54)
21. The Government should encourage carbon labelling for all products and services as a priority but ultimately as part of a universal and comprehensive environmental labelling scheme. It should legislate for this if necessary. An asymmetric devolution of powers presents a challenge to the development of legislation for a UK wide labelling scheme and the Government should open discussions with the Scottish Executive, the Welsh Assembly Government and the Northern Ireland Executive on how a UK wide sector-based universal labelling scheme can be developed. (Paragraph 55)
The written evidence submitted to the Committee by Defra in October 2007 set out what the Government sees as a crucial distinction—between the measurement of the carbon footprint of products and services, and any communication which a business makes about the footprint of its product. We considered then that the ability to measure and the willingness to act to reduce the footprint former are crucial; that forms of communication to supply-chain players, stakeholders and consumers are potentially important but still developing; and that—on the particular question of carbon labelling on products—options are being tried but the jury is still out.
Overall that is still where we think things stand, eighteen months on; but there has been encouraging progress. In particular, there has been great success in the priority area of enabling business to measure and address the carbon footprint of products. The process led by BSI and supported by Defra and the Carbon Trust, to establish a publicly available methodology, was robust and inclusive, and the specification (PAS 2050) was successfully launched in October 2008. It has attracted wide interest among businesses and among a wider community of policy-makers and standards experts internationally. The Government is encouraging this wider engagement through EU and international forums, and there is every indication that the practice of carbon footprinting will become much more widespread through global supply chains over the coming years.
Businesses are still developing the ways that they use the information to communicate with their suppliers, their business customers, their stakeholders and (where they sell such products) their household consumers. But this process should be able to develop more effectively now that there is a common methodology for assembling the information and a growing body of live information to work with. The Government is very interested to monitor these developments.
In the area of the carbon labelling of products, a number of businesses have been trying possible approaches, several of them working closely with the Carbon Trust, and trying to evaluate what approaches may be viable and genuinely helpful to the consumer. That work is continuing. But it is clear that there are two big issues that remain a challenge to any wider take-up of a particular carbon labelling approach.

The first issue is technical—the extent to which a carbon footprinting method and protocol can yield results which are precise and reliable enough, at the level of an individual product, to allow numerical values to be expressed for the purposes of comparing one product with another. At present, the methods will allow comparison between products produced by the same business (where the assumptions and data sources are common). But they are not sufficiently advanced to allow comparisons across the range of products on the market.
The second challenge is actually finding an approach which, at the level of the individual product, would be genuinely helpful and enabling for consumers. Several interested organisations have been researching and testing opinion on this second point over the last year. For example, Forum for the Future and the Sustainable Consumption Institute have published interesting reports, based on work done with industry and communication experts and on quantitative and qualitative market research with consumers. The results so far highlight the potential of upstream action by business and of approaches to communication which enable consumers to turn awareness into everyday behaviours and actions; but they cast doubt on the practical value to consumers of carbon labels placed on individual products.

The Government is keenly following the emerging evidence and the debate being stimulated by it. However, what this suggests at the moment is that there are some fundamental questions which would need to be settled before carbon labelling could become mainstream. As well as the questions noted above, there is the issue which the Committee itself notes about the relative significance of the carbon impacts of products alongside other environmental impacts, and indeed alongside social and ethical impacts. Across the huge number of different types of product to be considered, the relative weights of these different impacts—and therefore the potential relevance of carbon labelling to the consumer—will vary enormously.
On the wider questions of a 'universal' scheme' and legislative action, please see the earlier comments in the response to recommendations 1 and 2 above.

22. We welcome the launch of the Carbon Trust Standard label, the Carbon Reduction Label and the new Publicly Available Specification on carbon footprinting. They provide different ways for businesses to promote their commitment to emissions reduction and will help to focus efforts on cutting emissions across company operations. Government and the Carbon Trust should ensure that the difference between labels that focus on individual products and schemes that focus on the performance of organisations overall is well understood by consumers and manufacturers. (Paragraph 59) We agree with the Committee that there are distinct forms of emissions measurement across company activities, which are suited to different purposes and which have different audiences. We will ensure that this is reflected in the guidance which is produced on the reporting, disclosure and marketing of companies' emissions performance.

23. The Government should investigate how any sector-based universal labelling scheme could be used by companies, national and local government and other organisations to report on their environmental performance. An annual report carrying the 'traffic light' environmental impact label would inevitably hide much complex methodology and require rigorous auditing but it would send an admirably simple and effective message to shareholders and other stakeholders. (Paragraph 60) The Government is keen that companies should consider the environmental performance of their goods and services, as well as the more direct impacts of their processes and operations, when they report to stakeholders and customers. We will continue to promote that view in relevant guidance on reporting, disclosure and marketing.
The Committee's suggestion about a composite indicator for the impact of a company's goods and services is intriguing and has attractions. The problem is in the underlying complexity which the Committee notes. We have commented above (in the response to recommendation 1) about complexity in relation to the standardised assessment of different product types. The challenges would be multiplied greatly in trying to apply a common and composite approach across the whole 'fleet' of products for which a company is responsible, and to do so in a way that would be comparable across companies.

24. The Government must identify areas where lifecycle assessments could be translated into consumer labels that would encourage the most environmentally benign choice and that would send the right signal to manufacturers. (Paragraph 64) The Government welcomes the discussion on life-cycle assessment in paragraphs 61-63 of the Committee's report and agrees fully with the conclusion in paragraph 63 that labelling should be focussed on the areas where it will make the biggest difference to the behaviour of consumers and producers. We do not propose setting out to indicate, as an end in itself, where there should be new or additional forms of labelling. That would go against the grain of the strategic approach which we describe in the introduction to this response—and indeed of the spirit of recommendation 13, which we support.[112] But we are certainly interested to consider the scope for worthwhile opportunities for improved communication to consumers across the range of product and behaviour change work we are engaged in, nationally and at EU level, and Defra sees this as a significant part of its SCP programme.

25. Carbon labelling could have a profound effect on manufacturers and their supply chains. We believe that the Government must do more to support and encourage carbon labelling, including providing a statutory basis if necessary as part of a sector-based universal and comprehensive labelling scheme. (Paragraph 65) Please see the Government's response on carbon labelling under recommendations 20 and 21 above; and on the question of legislative action under recommendation 2 above.

Pre-Budget Report 2008: Green fiscal policy in a recession[113]

Conclusion/Recommendation Government Response

Green fiscal stimulus

1. The fiscal stimulus measures intended to pull the economy out of recession represent an invaluable opportunity decisively to transform the UK into a low carbon economy. A programme of investments in low carbon industries would help build a modern and sustainable economy, securing Britain's competitiveness and future prosperity in the new global economy that will emerge from this crisis. It is imperative that the Government grasps this opportunity in the forthcoming Budget. (Paragraph 8) The Chancellor announced at Budget 2009 a £1.4 billion package of additional targeted support for energy efficiency and low-carbon technologies. This includes £525 million support to offshore wind through reform of the Renewables Obligation; £375 million to promote energy and resource efficiency in businesses, public buildings and households, £405 million to support low-carbon industries and advanced green manufacturing in the UK; £60 million to fund detailed preparatory studies for carbon capture and storage;[114] and £70 million additional funding for decentralised small-scale and community low-carbon energy.
The measures announced by the Government since September 2008, including in the 2008 Pre-Budget Report and Budget 2009, will enable £10.4 billion more low-carbon and energy investment over the next three years. This is additional to the £50 billion of low-carbon investment that existing Government policies are enabling over the three years to 2011.

2. We welcome the £535m green fiscal stimulus announced in the Pre-Budget Report but are concerned that while it may assist economic recovery in the short term, in the longer term it will have very little additional impact on carbon budgets as little of the spending is new. The new money which is being applied as part of the overall fiscal stimulus could have been much better targeted at bringing environmental gains that would not otherwise have been made, especially by cutting emissions of greenhouse gases. (Paragraph 17) The 2008 Pre-Budget Report announced £535 million of accelerated capital spending and additional resources over 2008-09 and 2009-10 to promote environmental objectives and support low-carbon growth. As with the rest of the capital spending stimulus set out in the 2008 Pre-Budget Report, this package is intended to be:

timely—focused on projects that can be brought forward in the time available;
targeted—focused on supporting the domestic UK economy; and
temporary—focused on bringing forward spending in a sustainable way.

Delivery of this package is well underway with, for example, 234,000 households assisted in total by the Warm Front programme in 2009-10, new diesel carriages to boost rail capacity expected to enter service by 2012, and investment brought forward to sustain and accelerate the Decent Homes programme. Further activity on Warm Front and Decent Homes, as well as flood defences and the British Waterways canal network will take place in 2009-10.
As the Committee notes, bringing spending forward will accelerate emissions reductions, but will not in itself produce additional savings to those already assumed in Government projections (although the new money provided for Warm Front will deliver some additional reductions). However, as set out in Budget 2009, the UK is on track to meet its carbon budgets, with emissions expected to fall by around one-third by 2020 since 1990. While there is some uncertainty in predicting the exact path of future emissions, the latest Government modelling shows that UK emissions should be lower than required for the first and second budget periods, and well within the range of uncertainty for the third budget period.
The Chancellor announced at Budget 2009 a £1.4 billion package of extra targeted support for energy efficiency and low-carbon technologies. Together with Government announcements since September 2008, Budget 2009 measures enable a further £10.4 billion of low-carbon and energy investment in the next three years.

3. We recommend that the Treasury should adopt a target on the proportion of the UK's GDP which should be spent on green stimulus in this and future spending rounds. (Paragraph 18) As recommended by the Stern Review, the UK delivers a significant part of energy and climate change objectives by pricing carbon through regulation and economic instruments, rather than direct public spending. For example, the Renewables Obligation will drive a 10-fold increase in privately financed renewables by 2020, and the Carbon Emissions Reduction Target requires energy companies to invest in energy efficiency improvements for households. In addition, the Government is committed to pursuing the most cost-effective policies to reduce UK greenhouse gas emissions. It is therefore more appropriate to focus on the expected outcome of policy in terms of carbon abatement, rather than the resource input by Government.
Following this approach, the Government's policies are enabling some £50 billion low-carbon investment over the current three-year spending period, and the measures announced since September 2008 will enable a further £10.4 billion low-carbon and energy investment over the coming three years.

4. We recommend that the Treasury set out how the investment in new railway rolling stock will encourage modal shift away from journeys by car and plane and what impact it is expected to have. The Treasury should also explain how far environmental considerations will influence this procurement, given that some designs might be more energy efficient than others. (Paragraph 19) The Department for Transport 2007 White Paper 'Delivering a Sustainable Railway' set out the overall capacity objectives to be met from the procurement of 1300 new rail carriages, of which the 200 carriages announced at 2008 Pre-Budget Report form a part. The provision of the additional capacity in the Department for Transport's Higher Level Output Specification aims to reduce overcrowding now and in the future, as one element of encouraging modal shift to rail. The Department for Transport is responsible for managing the rolling stock procurement, including the technical and financial evaluation of proposals which will include ongoing operating and maintenance costs and the comparative efficiency and performance of new rolling stock.

5. We recommend that the Government increase the scale and speed of its programmes to improve the energy efficiency of existing buildings, and make this the UK's number one priority for green fiscal stimulus. (Paragraph 21) The Government is implementing a major £6.9 billion Home Energy Saving Programme to retrofit the existing housing stock, including the £1 billion package of new measures announced last September. As a result of this package, and the work of energy suppliers, the insulation industry and householders themselves, more than one million houses are estimated to have been insulated over the past year, saving each household up to £250 a year on their energy bills.[115]
Budget 2009 provided targeted additional resources to improve energy efficiency comprising £375 million to support energy and resource efficiency in business, public buildings and households and £70 million for decentralised small scale and community low-carbon energy over the next two years. This is in addition to the £100 million of new resources announced in the 2008 Pre-Budget Report that are being made available for the Warm Front programme in 2008-09 and 2009-10. The Government wants to make further progress. Consultation has recently closed (8 May) on new proposals to enhance energy efficiency in existing buildings as part of the development of the Government's Heat and Energy Saving Strategy.

6. We recommend that the Treasury publish an assessment of the net impact of its fiscal stimulus package (to date, and continuing as further measures are announced) on the environment, in particular carbon emissions, so that it is possible to see not only the net overall impact but whether each element is making a positive or negative contribution. The Treasury must make clear what percentage of the entire stimulus package in the PBR is directed towards green objectives. (Paragraph 22) Stimulus measures and targeted support announced at 2008 Pre-Budget Report and Budget 2009 aim to support economic growth, while ensuring a sustainable and low-carbon recovery. Rather than assessing the carbon impact of individual measures compared to a scenario in which Government takes no action to combat the impact of the downturn, it is more appropriate to focus on the overall path of UK emissions once the stimulus has taken effect and the economy recovers. Latest Government emissions projections based on Budget 2009 economic growth forecasts show that the UK is on track to meet carbon budgets, with emissions expected to fall by around one third by 2020 with respect to 1990 levels. It is realistic to expect that emissions reductions will continue to occur alongside economic growth—emissions per unit GDP in the UK have fallen 48 per cent since 1990.

7. We recommend that the Government make clear what the £250m for low carbon cars will be spent on, and when it will be spent. (Paragraph 24)

The Government published a cross-departmental pamphlet on 16th April 2009—"Ultra Low Carbon Vehicles in the UK". This set out the Government's vision for ultra low carbon vehicles over the next five years. Specifically, the document sets out:
using the bulk of the £250 million announced in January, the Department for Transport will create a scheme so that pioneering motorists will receive help worth £2,000 to £5,000 to buy electric and plug-in hybrid cars, when they hit the showrooms, which we expect from 2011 onwards. The funds will be available between 2011 and 2014; and
using £20 million to develop an electric vehicle charging infrastructure framework to help consortia of cities, regions, private businesses and utility companies create a UK network of electric car cities.

8. We recommend that the Treasury increase funding to transport measures that might be labour-intensive, relatively fast to implement, lighter in use of raw materials and fossil fuels, and effective in cutting emissions—such as 'Smarter Choices' measures, road maintenance, and other projects that could be swiftly progressed. (Paragraph 25) Government spending on transport has increased by 70 per cent over the past ten years. The Government remains committed to focusing transport investment on the challenge of delivering economic growth while at the same time reducing greenhouse gas emissions. As the Eddington Transport Study emphasised, it is important that Government takes full account of transport's wider impact on climate change, health, quality of life and the natural environment. These goals were set out in "Delivering a Sustainable Transport System", published in November 2008, which focused on the importance of making the most of opportunities to reduce emissions from city, regional and national networks. For example, a package of measures for an urban area may involve public transport investment, demand management, promotion of smarter travel choices and the use of land use planning.
The 2008 Pre-Budget Report set out a £700 million transport fiscal stimulus. This included the procurement of 200 diesel carriages to boost rail capacity more quickly, bringing forward managed motorway works on the M1 and M6 and a number of asset renewal schemes across the Strategic Road Network.

9. We recommend that the Treasury provide details of the environmental conditions attaching to the £2.3 billion loans package offered to car manufacturers. (Paragraph 26) The Automotive Assistance Programme (AAP) is managed by the Department for Business, Enterprise and Regulatory Reform, which has issued guidance on eligibility to the AAP. The environmental criteria of the scheme requires projects that are consistent with the Government's objectives for the low-carbon economy and which contribute towards meeting environmental and energy efficiency targets, reducing fuel consumption, reducing carbon emissions and achieving higher environmental protection standards (either in the production of finished vehicles, in the production of components of vehicles or in the manufacturing process itself).[116]

10. We would like to see a more strategic approach towards funding the transition to a low carbon economy. The Budget in April 2009 will be the ideal opportunity to set out such an approach alongside the carbon budgets; and we look forward to a much bigger and coherent package of green fiscal stimulus in the Budget, to be followed by consistently higher spending in areas designed to accelerate rapidly the UK's transition to a low carbon economy. (Paragraph 29) As noted in the response to Recommendation 3, the Government considers that public expenditure is a poor measure of commitment to climate change objectives. Consistent with the Stern report recommendations, the Government emissions reduction policy aims to incentivise carbon emissions reduction from the public and private sectors by providing a carbon price through fiscal measures or regulation, while providing additional support to overcome technology or behavioural externalities.
Budget 2009 provides over £1.4 billion of targeted support for the low-carbon and energy efficiency sectors, creating the incentives to transform the UK's energy and transport infrastructure for the long term. These policies build on the Government's industrial strategy set out in Building Britain's Future: New Industry, New Jobs published in April 2009 and the Low-Carbon Industrial Strategy: A Vision launched in March 2009. In total, the measures announced by the Government since September 2008, including in the 2008 Pre-Budget Report and Budget 2009, will enable £10.4 billion more low-carbon and energy investment over the next three years.

11. We recommend that, alongside the Budget, the Treasury publishes a comparison of UK Government spending on a low carbon economy with that of other G20 nations. (Paragraph 30) The Government considers that resource inputs are a poor measure of commitment to climate change objectives and will instead pursue the most cost-effective policies to reduce UK greenhouse gas emissions. Focusing instead on outcomes, the UK has made more progress with respect to its Kyoto target than any other G7 nation.

12. The Government now has a controlling interest in a number of banks. We recommend that the Treasury examine and report on how some form of environmental criteria for the investment strategies pursued by these banks might be imposed, and what impacts this might have on UK sustainable development objectives. (Paragraph 33) Government interventions to support the financial services sector are designed to assist the banking system, to support the whole economy to get lending going again.
Government intervention to support the financial services sector will support the whole economy and is not intended to single out specific sectors or companies for support.
The Government's interest is managed on a commercial basis by UK Financial Investments Ltd (UKFI), a company that is wholly owned by the Government. Its overarching objectives are to protect and create value for the taxpayer as a shareholder, with due regard to financial stability and acting in a way that promotes competition.

13. We recommend the Treasury, working together with the Department of Energy and Climate Change, examine the risks to the UK's climate change and renewable energy targets from the shortage of capital for investment in low carbon infrastructure, and bring forward proposals for ensuring that low carbon energy projects receive the finance they need. (Paragraph 35) Falls in carbon and energy prices, tight finance conditions and exchange rate fluctuations create risks for renewables and other infrastructure investment. Delays or failures of particular projects could also impact on the supply chain or on confidence in the sector overall. Budget 2009 therefore announced action to help protect investment in energy and renewables projects.
Action to support the economy as a whole through the downturn will help the energy sector. For example, recapitalisation of the banks and other macro policy initiatives, such as the Asset Purchase Facility and first-year allowances announced in Budget 2009, should help support energy investment.
The UK is already the world-leader in offshore wind. To ensure that investors are able to secure an appropriate level of return in the current economic climate, and that the UK remains an attractive destination for wind investment, Budget 2009 announced a banding review with the intention of increasing the banding of Renewables Obligation Certificates (ROCs) from 1.5 to 2.0 for offshore wind projects meeting specified completion criteria if they place new orders in 2009-10, and then 1.75 in 2010-11. It is expected that this will protect up to £9 billion of investment over the next two years—enough to power 2.8 million homes.
Energy projects seeking bank lending can experience difficulties in raising the necessary finance in current conditions. Budget 2009 announced that UK renewable and energy projects stand to benefit from up to £4 billion of new capital from the European Investment Bank (EIB) through direct lending to energy projects and intermediated lending to banks. The Government is bringing together the EIB, banks and developers to ensure this new framework lending and other products deliver rapid and sustained investment for UK renewable energy. The Government believes that this initiative can bring forward £1 billion of consented small and medium-sized UK renewables projects to deployment.
As set out in Building Britain's Future: New Industry, New Jobs, a thriving low-carbon industry will need investment in technology development, infrastructure and supply chains. Budget 2009 announces that the Government will allocate £405 million to support the development of a world-leading low-carbon energy and advanced green manufacturing sector in the UK. The funding will support the development and deployment of low-carbon technologies such as wind and marine energy (for example through building facilities to test prototype models), and will help attract and protect investment in the UK's low-carbon supply chain. Funding will be delivered through existing programmes such as the Environmental Transformation Fund and as part of the Strategic Investment Fund, as set out in Chapter 4 of Budget 2009.
These measures will help establish the UK as a market leader in renewables technology and advanced green manufacturing.

14. We recommend that the Government ensures that the clear evidence that investment in low carbon industries will lead to net job creation is reflected in UK industrial policy. (Paragraph 38) Budget 2009 recognised the opportunity to create new jobs and business in sectors of the future through low-carbon growth. By 2015, the low-carbon and environmental sector in the UK is expected to grow by £45 billion, taking its total worth to £150 billion and could employ 1.3 million, up by 400,000 from today. Budget 2009 announced £1.4 billion of targeted support for this sector, building on the Government's wider industrial strategy set out in Building Britain's Future: New Industry, New Jobs published in April 2009 and the Low-Carbon Industrial Strategy: A Vision launched in March 2009.

15. We recommend that when the SDC publishes its report 'Redefining Prosperity', the Treasury should publish a detailed response to it. (Paragraph 39) The Government welcomes the SDC's contribution to the public debate on sustainability and economic growth through publication of its report on "Prosperity without growth?" The Exchequer Secretary to the Treasury met with Commissioner Tim Jackson, the main author of the report, before Budget 2009 to discuss the SDC's work as well as the Commission's proposals for a green fiscal stimulus. Defra's Secretary of State also plans to meet with the SDC shortly and Government officials will continue to engage with the SDC and others on the issues the report covers.

Green taxation

16. We recommend that the Treasury publishes with the Budget its assessment of how the tax changes announced in the Pre-Budget Report help to shift the burden of taxation from 'goods' to 'bads'. This assessment should quantify the expected changes to environmental tax receipts, as defined by the Office of National Statistics, in terms of their proportion both of total tax receipts and of GDP. (Paragraph 44) Measures that affect Government revenues are set out in Chapter A of the Budget 2009 report, with current and projected tax receipts set out in Chapter C.
Tax changes announced at Budget 2009 will help support the public finances, while also driving the move to a low-carbon and resource-efficient economy:

an increase in fuel duty of 2 pence per litre on 1 September 2009, and of 1 penny per litre in real terms each year from 2010 to 2013. This will contribute to medium-term fiscal consolidation, and save 2 MtCO2 per year by 2013-14; and
a continued increase in the standard rate of landfill tax by £8 per tonne on 1 April each year from 2011 to 2013 to reduce landfill in a sustainable way by encouraging further investment into alternative waste management options.

Environment and transport taxes play an important role as part of the package of measures that has enabled the UK to make significant progress against its environmental aims, while also supporting wider Government objectives. Tax is only one instrument among many being used to achieve environmental objectives. Rather than focus exclusively on tax measures, it is important to look at the Government's record across the board and the full range of measures that have been introduced. The UK has made significant progress against its environmental aims—including making more progress with respect to its Kyoto target than any other G7 nation.

17. We also recommend that the Treasury confirm whether its definition of an environmental tax is one in which the revenues are explicitly hypothecated to environmental ends. (Paragraph 44) Where the Treasury refers to environmental taxes, it means the climate change levy, aggregates levy and landfill tax—those taxes that were introduced primarily to have an environmental impact. Each of these taxes was introduced alongside a cut in National Insurance Contributions as part of the shift from 'goods' to 'bads'. Government's spending priorities are not, in general, determined by the way in which the money is raised. Hypothecating revenues to particular spending programmes imparts inflexibility in spending decisions and can lead to a misallocation of resources, with reduced value for money for taxpayers.

18. We recommend that the Treasury reinstates its plan to reform Air Passenger Duty into a per plane tax. (Paragraph 49) The decision not to proceed with aviation duty ensures greater stability in tax policy during a period of economic uncertainty and ensures that the competitiveness of the freight industry and of UK airports is not undermined. Also, since the Government consulted on proposals to introduce a per plane tax, it has been successful in gaining agreement for aviation to enter EU ETS. In doing so, the Government has established a long-term framework for the sector. The Government also continues to explore amendments to the Chicago Convention on an international level.

19. We welcome the Treasury's introduction of the link in the Air Passenger Duty regime between distance traveled and tax payable. (Paragraph 50) Reforming Air Passenger Duty from a two to a four-band structure now provides a stronger correlation between the amount paid and the environmental damage.

20. We recommend that the Treasury publish an explanation of why it believes the APD charges announced in the PBR will discourage unnecessary air travel. (Paragraph 51) The reform will ensure that those flying further, and therefore contributing more to emissions from aviation, will pay more. In setting the rates for each band, we have sought to improve the correlation with the environmental damage of each journey. For instance, a passenger traveling to Band D will emit on average, around 14 times as much carbon dioxide as one traveling to a Band A destination. This reform will also result in savings of 0.6 MtCO₂ in 2011/12.

21. We recommend that the Government seek the support of the new US Administration in promoting reform of the Chicago Convention to allow governments to impose a tax on international aviation fuel. (Paragraph 52) The UK continues to argue for change at international level, and is engaging constructively with our international allies. However, this process will inevitably take time and cannot be relied upon alone as the key plank of Government's strategy.

22. We recommend that the Treasury introduces both fuel duty and VAT on domestic flights, to encourage modal shift, especially to rail. (Paragraph 52) It is important when comparing with other countries to look at the whole taxation position. Most other Member States charge VAT on plane tickets consistent with their treatment of other forms of public transport; the Government has a manifesto commitment not to impose VAT on public transport.
We recognise that the exemption of aviation from fuel tax is anomalous, but this exemption stems from international obligations. The UK continues to argue for change at international level.

23. We urge the Treasury to stick to its plans to introduce first year rates of VED in 2010-11, even if the economy continues in recession, and recommend that it should review the proposed increases in the standard rate for 2010-11 to assess whether they are sufficient to encourage people to purchase more fuel efficient vehicles. (Paragraph 55) The Government confirmed in the 2009 Budget that First-Year Rates of Vehicle Excise Duty will be introduced from 1 April 2010. First-Year Rates will be zero for cars emitting up to 130g CO2 per km. They will be the same as standard rates for cars emitting between 131-165g/km. For cars emitting over 165g/km, they will be higher than standard rates, up to the top rate of £950 for cars emitting over 255g/km. First-Year Rates will provide a strong signal at the point of purchase that drivers can save money by buying lower-carbon cars.

24. We recommend the Treasury set out the calculations which lead to its conclusion that under a 'car scrappage' scheme, the environmental costs of buying a new car would outweigh the benefits of trading an old vehicle for a more efficient model. (Paragraph 56) The scrappage scheme announced at Budget is primarily designed to boost the automotive industry and restore consumer confidence, not as an environmental measure. However, the scheme will encourage replacement of ageing vehicles by new models which generally have lower emissions, and is expected to have a neutral or modest positive environmental impact.

25. We recommend that the Treasury looks again at linking an element of fuel duty revenues to increased funding for public transport and the development of alternative technologies, such as electric cars, in order to develop public support for more consistent use of fuel duty as an environmental tax. (Paragraph 57) In setting fuel duty (and all other tax) rates, the Government takes all relevant social, economic and environmental factors into account. Transport taxes are revenue raising instruments, while also playing a significant role in incentivising fuel-efficient driving and reducing emissions. Therefore, as part of the Government's plans for securing medium-term fiscal consolidation, transport taxes will be used to ensure that the burden of taxation, where possible, falls in such a way as to reduce CO₂ emissions.
At Budget 2009, the Government therefore announced that—to support fiscal consolidation—main road fuel duty will increase by 2 pence per litre (ppl) on 1 September 2009 and by 1ppl in real terms on 1 April each year from 2010 to 2013. This is forecast to save around 2 million tonnes of CO₂ per year, by 2013-14.
Separately, the Government remains committed to encouraging investment in the development and take-up of vehicles with lower carbon emissions, including ultra-low carbon vehicles. To support the shift towards these vehicles, in January 2009 the Government announced £250 million of funding. In April 2009, Ultra Low-Carbon Vehicles in the UK, published by the Government, sets out further details in this area.
However, the Government's spending priorities are not, in general, determined by the way in which the money is raised. Hypothecating taxes to particular spending programmes can reduce flexibility in spending decisions and lead to a misallocation of resources, with reduced value for money for taxpayers. The Spending Review process ensures that resources are allocated efficiently to deliver Government priorities.

26. The 2009 Budget is a test of the Government's commitment, in difficult economic times, to its climate change policy. It requires consistency and boldness of purpose; the Pre-Budget Report 2008 does not reassure us that this is in place. We hope the Budget itself will. (Paragraph 60) Budget 2009 set out the world's first carbon budgets—a step-change in the level of UK ambition on tackling climate change. Budget 2009 provides over £1.4 billion of additional targeted support for the low-carbon sector. Together with announcements made since last autumn, these measures will enable an additional £10.4 billion of low-carbon and energy investment over the next three years, securing new jobs and new business, and placing the UK at the forefront of a worldwide low-carbon recovery.

Reducing CO₂ and other emissions from shipping[117]

Conclusion/Recommendation Government Response

Shipping and global climate change goals

1. Policy must have a rational basis. Given the absence of a consensus within the international community, the Government should take the lead in determining what level of emissions from shipping would be compatible with delivering the objective of limiting the rise in temperatures to 2°C. This should be used in turn to determine targets for emissions from shipping in 2020 and 2050. The Government should then use these global figures to inform its policies and actions by making an estimate of the UK's share of the global total. The Government should commission research on recommended targets for shipping emissions in 2020 and 2050, and for the trajectory of emissions that should link them. (Paragraph 13) The Government agrees that any overall target for global greenhouse gas emissions should be consistent with limiting climate change to an increase in global average of temperature of no more than 2°C. It also believes that any global target should be achieved cost effectively, recognising the abatement potential and associated costs of each of the emitting sectors.
Therefore, the Government considers that any targets set for individual sectors should not be determined unilaterally. The appropriate targets for international shipping will depend on a variety of factors, including the targets for other sectors that are agreed as part of a new international agreement on climate change at Copenhagen and the relative abatement potential and costs of the sector. Any target for the shipping sector should therefore be informed by an understanding of the relative level of challenge, potential impacts on the industry and distributional effects.
The Government therefore considers that the appropriate emissions reduction target for shipping must be determined internationally. The UK will continue working with other countries in international fora to arrive at a consensus on the appropriate targets for shipping in 2020 and 2050. We are confident that workable solutions can be found and the UK is committed to playing a leading role in reaching such an agreement.

Progress of international negotiations to tackle CO₂ from shipping

2. With a view to stepping up the pressure to achieve an IMO-wide agreement, we recommend the Government maintain a constructive approach within the IMO, while actively seeking agreements to limit shipping emissions outside the IMO process—notably within the European Union, and through the UNFCCC. (Paragraph 17) The Government will certainly continue its constructive approach within the IMO. We will work actively in the UNFCCC, with a view to getting agreement to a target which will be taken forward in the IMO. When taking matters forward in these international fora, we will continue to act in close cooperation with other EU Member States.
We also will continue to work within the European Union to give shape to the measures which the Commission will bring forward in the event that the international process does not deliver an agreed solution to the problem of greenhouse gas emissions from ships. However, we want an international solution. A regional European solution would be a first step in the right direction on the way to the preferred global approach.

3. We deplore the ongoing delays in reaching a global agreement to tackle greenhouse gas emissions from shipping. We recommend the Government work with the European Commission to examine the merits and practicalities of its proposals, with the aim of achieving practical action as swiftly as possible. We recommend that the Government follow up its proposals to the IMO on emissions trading with some concrete proposals or makes clear what alternative solution it is working towards. (Paragraph 28) The most appropriate course of action to push forward with developing global measures is to carry on working internationally through the IMO and the various inter-sessional meetings of the UNFCCC in the run-up to Copenhagen. The UK will work with international partners, including the European Commission, and look at all credible proposals with a view to making progress on this globally important issue of addressing the greenhouse gas emissions from international shipping. We aim to clarify our thinking on emissions trading to ensure any approach which we support achieves the environmental outcome in an efficient and effective way, and work is underway to do this. It is a complex subject and there are many issues to be resolved.

Shipping emissions and the Climate Change Act

4. We agree with the Committee on Climate Change that the Government should work to secure the inclusion of shipping emissions within the EU's climate change targets. But we do not see why shipping should be treated differently from aviation. We recommend the Government consider taking international shipping emissions into account in setting UK carbon budgets from day one, in a similar fashion to emissions from international aviation. (Paragraph 34) We are legally required to take international shipping emissions into account in setting carbon budgets, as well as international aviation emissions. We have published estimates of future emissions in the carbon budgets document. But we agree with the Committee on Climate Change view that international shipping is a clear example of a sector where unilateral, national or even regional action is problematic, and where achieving a global sector deal is a priority, and therefore that we should not unilaterally adjust our carbon budgets to reflect shipping emissions.
International aviation will be included in the EU Emission Trading System (EU ETS) from 2012, and the EU's 20% and 30% greenhouse gas emission reduction targets. The first three carbon budgets are based on this framework, and therefore implicitly take into account international aviation emissions. However, international shipping is not included in the EU ETS, and is excluded from the EU's 20% and 30% greenhouse gas emission reduction targets. Therefore, it is not possible to take international shipping emissions into account in the carbon budgets in the same way.
For both international aviation and international shipping emissions, the priority has to be to focus on global approaches. The Government supports European action on international aviation emissions as an interim step, and recognises its potential benefits. However, the Government notes the conclusion of the Committee on Climate Change that a 'European only' approach to international shipping could be undermined by carbon leakage. (Carbon leakage occurs when there is an increase in emissions in one country/region as a result of emissions reduction by a second country/region with a strict climate policy.)
The risk of carbon leakage from the inclusion of international aviation in the EU ETS is far less significant. It is for this reason that European action on international aviation emissions has progressed more rapidly. Nonetheless, the Government would be open to European action on international shipping emissions as an interim step to a global agreement as long as it did not hinder reaching such a global agreement or result in perverse effects on the industry, such as creating carbon leakage.

5. The current methodology for calculating international shipping emissions underestimates actual emissions. The Government must produce a more accurate estimate, and state what effect this would have on total UK CO2 emissions were it to be taken into account. We recommend that the Government consult on the methodology it should use to calculate the UK's share of international shipping emissions. (Paragraph 39) The Government agrees that the usual methodology for calculating the UK's international shipping emissions—ie bunker sales in UK for international voyages—is likely to understate the amount. Given the international nature of shipping activity, developing a common methodology for measuring international shipping emissions is best taken forward through the UK working with international partners through the UNFCCC and the IMO. Currently, the work of these organisations is focused on getting a global climate change deal (including a sectoral emissions reduction target for international shipping) and developing measures which will reduce CO₂ emissions from ships. The issue of assessing individual countries' share of emissions could be considered as part of that process.

6. In pursuing any policy mechanism designed to curb UK shipping emissions, it will be important to seek to work within a multinational scheme, in order to maximise effectiveness and minimise evasion. We recommend that the Government push for agreement within the EU on measures to tackle shipping emissions at a European level. It will also be important to test policies so that they avoid "reverse modal shift" from shipping to road freight. Until a European or global agreement is reached, we recommend that the Government should simply adjust the carbon budgets for the rest of the economy downwards to compensate for the volume of the UK's international shipping emissions. (Paragraph 41) Shipping is a global industry and our aim is to address shipping emissions globally, not merely on a national basis. The Government will certainly work on a multinational basis, both in UNFCCC and in the IMO and it has worked—and will continue to work—closely with the other EU Member States. However, our primary concern is to achieve international agreement, not just a solution which will only apply to Europe. A successful international, global approach to addressing greenhouse gas emissions from international shipping would preclude the need for unilateral EU action. The Government agrees on the importance of ensuring that policies do not lead to "reverse modal shift" from shipping to road freight and will work to ensure any policies implemented do not encourage such behaviour. We cannot agree that, until a European or global agreement is reached, the Government should adjust the carbon budgets for the rest of the economy downwards to compensate for the volume of the UK's international shipping emissions.

Mitigating emissions from shipping

7. We welcome the fact that the Department for Transport has commissioned a Shipping Emissions Abatements Techniques Review. We recommend it work together with the Technology Strategy Board to review the potential for UK universities and industry to develop these technologies, and exploit the economic opportunities arising from them. This review should identify where Government support could help British researchers, designers, and shipyards to become global leaders in technologies that can be applied worldwide. We recommend that particular attention should be paid to technologies that can be retrofitted to existing ships, as this could have the biggest impact in the short- to medium-term. We also recommend the Government encourage more research into technologies which offer a genuine alternative to fossil fuels: if shipping is to be decarbonised it needs truly alternative propulsion systems. (Paragraph 48) It is important that the Government builds and retains an up to date understanding of the potential for greenhouse emissions abatement in the shipping sector, and that this is based on the best available evidence. In addition, this should be accompanied by an assessment of the costs of investing in, implementing and making these technologies, and other measures, operational.
The Government will encourage the Shipping Emissions Abatements Techniques Review to work with the Technology Strategy Board to review the potential for UK universities and industry to develop these technologies, and exploit the economic opportunities arising from them.
The Government considers that it would be valuable for this review to consider a range of issues, including options for subsidies and other ways to encourage and support UK researchers, designers, and shipyards to become global leaders in technologies that can be applied worldwide.
We concur with the Committee's recommendation that particular attention should be paid to technologies that can be retrofitted to existing ships. We agree that measures of this nature could play a valuable role in achieving early reductions in emissions from ships.
The Government also endorses the Committee's view that propulsion systems which do not rely on hydrocarbons for fuel are important for the reduction of CO₂ emissions from ships. We will take a keen interest in research as it emerges on these systems, and other options and will consider the scope for Government research to add value in this context. However, these alternative technologies have already been the subject of an appreciable amount of research. We consider that what is needed now is for the international shipping industry to be provided with a stimulus to take up these alternative propulsion technologies. In our estimation, that stimulus would be provided by carbon pricing and an emissions trading regime.

8. It is not technically difficult to measure emissions; the difficulty is the political question of how they are apportioned. We believe it would be technically feasible to establish an international emissions control regime—whether on a regional or global basis—that could accurately charge (or require carbon permits from) each ship according to its actual emissions, and securely enforce and verify compliance. A truly global regime would be ideal, but while this is negotiated and constructed we recommend the Government work with European partners to establish a scheme that applies across the European Union. (Paragraph 52) The Government has yet to be convinced that the measurement of ships' actual emissions is a realistic proposition. However, if it could be demonstrated that it is technically feasible, then we would welcome the establishment of an international emissions control regime on a global basis that could accurately charge (or calculate the emissions allowances that should be surrendered by) each ship according to its actual emissions.
We are focusing on a global solution to address the global problem of CO₂ emissions from ships. We would be open to an EU system as an interim step, as long as it would not hinder reaching a global agreement or lead to carbon leakage. However, we continue to take the view that regional action should come into play only if success in the international fora is not deliverable within an acceptable timescale.

9. The Government's position on the use of emissions trading to tackle greenhouse gas emissions from ships is too vague. It promotes emissions trading because this is said to impose a definite cap on emissions but will not discuss what cap shipping should be given, nor what cap any wider schemes shipping is linked to should have. We recommend the Government clarify what cap should be imposed on emissions from shipping in any trading scheme. (Paragraph 54) Given the international nature of the shipping industry, and the relatively high costs of abatement, the Government believes that the most effective way to tackle CO₂ emissions from ships would be through the implementation of a suitably designed emission trading system in which shipping participates. Such a system would also provide greater certainty over the environmental outcome by placing a quantified cap on emissions.
It is important that the system in which shipping would operate is designed in a way which achieves the desired environmental outcomes and importantly, is efficient, transparent and does not have significantly adverse distributional or behavioural effects. The design of the system must also be accepted by our international counterparts and committed to by them.
The negotiation of the cap on international shipping emissions is absolutely central to this process. Any cap on international shipping emissions must clearly be consistent with the aim of limiting climate change to an increase in global average temperature of no more than 2°C above pre-industrial levels.
The appropriate cap for international shipping emissions will depend on a variety of factors, including the targets for other sectors that are agreed as part of any new international agreement on climate change at Copenhagen and the particular characteristics of the industry. A cross-Government group consisting of representatives from DfT, DECC, HM Treasury and the Department for International Development has been formed and is developing the design of a cap and trade system and identifying possible target ranges.
The Government envisages that negotiations in international fora (either at the Copenhagen conference or subsequently in the IMO) will result in the agreement of a target for reduction of CO₂ emissions from international shipping. The UK will continue working with other countries in international fora to arrive at a consensus on the appropriate cap for international shipping.

10. Given that carbon pricing lies at the heart of its strategy on shipping emissions, we recommend the Government commission research on the relationship between: (i) levels of charges; (ii) changes in ship owners' investment decisions and operational practices; (iii) consumer behaviour; and (iv) the impact on emissions. (Paragraph 55) The Government agrees with the Committee that this is a useful piece of work. The Government will commission it to help understand how the industry, its ship operators, freight rates, consumers and others would be likely to respond if costs were to rise due to carbon pricing of some sort. However, the quality and availability of data are likely to be an issue.

11. Government statements on the potential for an international scheme to curb shipping emissions to raise funds for climate change adaptation in developing countries are unclear. The Government appears to support this as an objective; but it also has concerns over the distribution of such funds by an international body, as well as appearing simply to oppose hypothecating revenues from emissions trading schemes for this purpose. We recommend the Government explain precisely what its position is, and how it proposes to overcome its objections—given that any proposed scheme, whether a levy or a trading scheme, will involve the collection and disbursement of international funds, at least partly for the express purpose of assisting developing nations with mitigation and adaptation. (Paragraph 60) The Government is not convinced that international hypothecation is the best way to raise climate finance. The Government does not in general hypothecate revenue in such a way, as it can create inefficiencies in both revenue raising and spending, as well as volatility of funding. Tax and spending decisions should be taken in the round at Budgets, Pre-Budget Reports and Spending Reviews. To ensure sound management of public finances and maintain credibility of fiscal policy, it is essential that these procedures are followed. This also enables the wider fiscal context to be taken into account, aids good policy making by allowing consideration of the overall economic and distributional impact of tax and spending policies, and ensures we are able to make trade-offs to meet all government priorities.
Currently, revenues accruing from the auction of emissions permits within the EU ETS are treated by the Exchequer in the same way as all other revenues; and finance disbursed for climate change mitigation and adoption (e.g. the UK's contribution to the Climate Investment Funds) is decided through the usual Budget/ PBR and spending review process. There is no reason that future climate finance should not be treated in the same way.
The Prime Minister has put forward an ambitious initiative on finance for climate change. As part of this initiative, developed and developing countries should work together on a global figure of around $100 billion per annum by 2020 to help developing countries address climate change. The global carbon market (emissions trading) should be expanded and enhanced to deliver around half of this $100 billion. All countries should use a transparent and regularly updated formula—based on ability to pay and emissions—to determine how much they will each contribute, though the poorest countries would be exempted. The UK is willing to support a mechanism for generating predictable flows of international public finance—for example, by auctioning a small proportion of international emissions allowances, as proposed by Norway. The UK will provide finance additional to existing Official Development Assistance (ODA) commitments and will encourage other countries to do the same. Within this context, the Government will explore the role that action to reduce emissions in shipping and aviation has in providing carbon finance.

12. We are unimpressed by the evidence which we have heard on the ambition, rigour, and likely effectiveness of the proposed Energy Efficiency Design and Operational Index. The weakness of the latter is particularly disappointing, given that very simple operational measures (such as slower steaming) have a significant potential to reduce carbon emissions quickly, and often without large investments. We commend the Government's efforts towards getting agreement on making the Operational Index mandatory for all new ships. We recommend that the Government, working with the European Commission, explore other measures to encourage or compel shipping operators to improve efficiency. (Paragraph 64) The Government continues to believe that the Energy Efficiency Design Index (EEDI) will be a valuable tool for achieving emissions reduction targets, and does not agree with the Committee's conclusion that it will be weak. It is important to bear in mind that developing an index which will be appropriate for and applicable to all types of ship in all navigating conditions is a highly ambitious and complex enterprise. There will inevitably have to be some variations, exceptions or exclusions in order to preclude perverse consequences. Due to the complexity of maritime trades and the wide range of specialised ship designs, some vessels will need to incorporate design features that render them less energy efficient in order to deliver their transport role—for example ice strengthened vessels are inherently less energy efficient than non-ice strengthened ships due to the additional design elements required to carry out their role safely. Clearly the EEDI must function in a manner that delivers energy efficient designs without compromising safe operation. Nonetheless, we consider that it is possible for the states working together in the IMO to reach agreement in 2009 to the EEDI's broad principles and in 2010 to its detailed rules of application. Our aspiration, as we indicated in our evidence to the Committee, is for the EEDI to be made mandatory for new ships and voluntary for other ships. As a precursor to this we will be pressing for a period of voluntary implementation to ensure that the formula is robust, resolves the issues noted above and will provide an incentive for delivering efficient, safe shipping in the long term.
The Government recognises that the Energy Efficiency Operational Index (EEOI) currently looks less robust than the EEDI. However, we anticipate that there will be further work in this area within the IMO to make the EEOI more effective. Moreover, even if it does not prove possible to make the EEOI into an effective tool, this will not diminish the importance of the attractiveness of operational measures to reduce CO₂ emissions. The Committee rightly points out that operational measures (including, but by no means limited to, reducing speed) have a very significant potential to reduce CO₂ emissions from ships, and we are confident that the international shipping industry is alive to this consideration. We consider that the increased awareness of the value and effectiveness of operational practices which have the effect of reducing CO₂ emissions will have significant beneficial effects, not least because of the correlation between reduced CO₂ emissions and reduced consumption of fuel. While on the subject of the EEOI, we must correct one statement made in the Committee's report which results from a misunderstanding of the evidence which we gave to the Committee. When we said, in response to Question 267, that we aspired to having "this index … made mandatory for new ships", we were referring to the EEDI and not the EEOI. While we are strong proponents of a mandatory EEDI for new ships, we do not consider it appropriate for the EEOI to be mandatory. The EEOI is a necessarily detailed management tool that will be tailored to a particular ship, trade and potentially an individual voyage and mandating its application would be difficult in practice to implement and enforce.
We will certainly explore measures to encourage or require shipping operators to improve efficiency. We will discuss the matter with shipping industry contacts. We will consider whether there is scope for addressing this through guidance or regulation, and, if there is, we would wish to take it forward in the IMO on a global basis, rather than adopting a merely regional approach.

13. We recommend that the Department for Transport review the benefits, practicalities and costs of variable port dues, according to the environmental performance of different ships. In doing this, it should work with the European Commission, with the aim of harmonising policy across EU ports. (Paragraph 65) Ports in the United Kingdom are independent statutory bodies. They are empowered historically to levy dues to cover the costs of maintaining the right of access under the open port duty. The charging regime is entirely the responsibility of individual port authorities and there is no common pattern on the exact break-down of what these fees include and how they are calculated.
Because the UK ports sector is market driven, the setting of port tariffs is considered to be a commercially competitive issue. Regardless of the merits of a levy related to environmental performance of ships we do not believe it would be efficient to bolt on an element of charging that was not related to port access and which would cut across commercial discretion.
In developing its European Ports Policy Communication the Commission has made various proposals for a more regulatory approach to port tariffs. But for the reasons explained above, the Government would resist such intervention. Accordingly we see no need for research and would not seek harmonisation across European ports.

Air quality and non-CO₂ contributions to climate change

14. We welcome the progress made within the IMO on limiting the emissions of particulate matter and harmful gases other than CO₂. This gives us confidence that shipping's environmental impact from these emissions—on climate change, ocean acidification, and public health—are being significantly reduced. The Government must ensure that the tightening of regulations agreed at the IMO last year is conformed to in practice. The Government ought to investigate the concerns raised by the UK shipping industry that increased costs arising from these regulations will lead to freight being transferred from sea to road; but this must not be used as an excuse for watering down these regulations. (Paragraph 71) The Government also welcomes the progress made within the IMO on limiting the emissions of particulate matter and harmful gases other than CO₂. We strongly support the revised MARPOL Annex VI and will be developing the legislation to implement it in the UK. We are investigating the concerns raised by the UK shipping industry that increased costs arising from these regulations will lead to freight being transferred from sea to road. Nonetheless, we will not prejudice the revised Annex VI and the substantial gains in terms of environment and health which it brings.

15. We recommend the Government assess the case for mandating cold ironing to improve air quality in the UK, taking into account the projected air quality benefits of recent IMO regulations. The Government should include this issue in its forthcoming national policy statement on ports. The Government should also consider the potential benefits, as an alternative to cold ironing, of extending the stricter regulations that will apply to the North Sea to other coastal waters around the UK. (Paragraph 75) The Government considered this matter in the course of the ports policy review in 2006, leading to the policy set out in the Interim Report of July 2007. That policy supports the use of 'cold ironing' where feasible, and the making of advance physical provision for the installation of equipment at newly developed facilities in future. However, available evidence on the costs and benefits of cold ironing does not at present support making its provision mandatory, either for future development or by retro-fitting at existing ports. Each case needs to be considered on its own merits. We therefore expect that the national policy statement for ports will be consistent with the Interim Report in this as well as other respects.
The Government will consider the potential benefits of extending the Emission Control Area which currently covers the North Sea to other coastal waters around the UK. We propose to commission research to establish the level of risk to the UK's environment and to human health in the UK from pollutant emissions from shipping in those sea areas proximate to the UK which are not already covered by the Emission Control Area in the North Sea (which includes the English Channel). We will also, following the principles of good regulation, ensure that the impact on industry—in the form of increased costs or other increased burdens—of any such extension is fully assessed and taken into account in the decision-making process.

Reducing greenhouse gas emissions from deforestation: No hope without forests[118]

Conclusion/Recommendation Government Response

1. An agreement on reducing emissions from deforestation and forest degradation will be required if the UNFCCC conference in Copenhagen in December 2009 is to be a success. We are concerned by evidence that the negotiations are focusing solely on the development of a payment mechanism. An agreement at Copenhagen must include a decision that the global community will also act on both the supply- and demand-side causes of deforestation. In particular, the UK and other developed countries must reduce the impact of their consumption patterns on deforestation and forest degradation. (Paragraph 14) The UK agrees that reducing emissions from deforestation and forest degradation (REDD) must be part of a Copenhagen agreement in order to be on track to meet our ambition to keep global surface temperature increases to less than 2°C. At Copenhagen the UK wants to reach agreement to reduce tropical deforestation by at least 50% by 2020, and to halt global forest cover loss by 2030 at the latest, while providing sustainable livelihoods to forest communities and conserving and sustainably using biodiversity and other forest ecosystem services.
The text under consideration for Copenhagen[119] shows that the negotiations on reducing emissions from deforestation, forest degradation and sustainable management of forests (REDD+) are complex and go much wider than designing a price mechanism. We support the multiple references to broader sustainability issues and recognition of the importance of demand-side measures.
The Government is fully aware that in order to see real emissions reductions from deforestation and degradation, incentives need to address country specific drivers. Supporting robust forest governance, including legislative frameworks and adequate enforcement are essential. Any payment mechanism for carbon reductions therefore needs to be preceded by institutional capacity building where necessary, and complimented by demand side measures. That is why we are participating actively in the International Working Group on Interim Finance for REDD (IWG-IFR)[120] which is working on a phased approach to capacity building leading to incentive payments, and continue to support the development of measures at the EU level to tackle trade in illegal timber. Measures under the European Union's Forest Law Enforcement Governance and Trade Action Plan 2003 can support the governance reform necessary.

2. The UK Government must lobby for an agreement in Copenhagen that includes a mechanism to support capacity building and effective governance in rainforest nations. The Copenhagen agreement must reduce the economic drivers of deforestation. (Paragraph 21) The Government accepts that capacity building for climate change is fundamental for developing countries in implementing the UNFCCC Convention and in addressing climate change at the national level. Capacity building should be country-driven and therefore based on specific capacity requirements. The Prime Minister launched on 26 June an initiative to set out the UK's views on climate finance, to encourage ambitious outcomes at Copenhagen, which recognised the importance of REDD.
We fully understand that financial incentives will not address greenhouse gas mitigation in the forest sector if forest governance is weak. In many countries illegal activity—both through logging and land conversion—has been one of the most significant drivers of deforestation and forest degradation. It is therefore vital that we address issues of forest governance and build on existing national and international initiatives in this area in order to effectively address the drivers of deforestation. It is our objective that an agreement on REDD at Copenhagen will create a new economic incentive to value the carbon in forests, so that this value can be properly reflected in subsequent decisions about how forest resources should be used.
The UK is seeking to ensure, through the EU Forest Law Enforcement Governance and Trade (FLEGT) Action Plan 2003, and participation in the World Bank Forest Carbon Partnership and Forest Investment Programme, as well as through the IWG-IFR, that developing countries have in place the capacity to tackle effectively the drivers of deforestation.

3. We recognise the benefits of channelling funding through multilateral organisations, but the Government must ensure that these organisations effectively deliver its aims. More resources should be given to bilateral activity on forestry related issues, especially as development objectives and climate change objectives are well aligned in measures to reduce emissions from deforestation. (Paragraph 24) The Government takes seriously the effectiveness of the multilateral finance institutions through which it channels funding. A performance framework is in place to monitor progress in improving the effectiveness of these institutions. The UK is represented on the governing bodies of the Congo Basin Forest Fund, the Forest Carbon Partnership Facility and the Forest Investment Programme and is able to exercise direct oversight of these funds.
DFID will direct more resources bilaterally to meet specific objectives and to take advantage of opportunities to advance wider, international, objectives.

4. We caution against further reductions to UK bilateral activity in significant rainforest nations. The UK must be able to work effectively on environmental issues in its bilateral relationships. Outsourcing environmental work may lead to a reduction in civil service expertise and the UK's effectiveness in this field. The Government must ensure it retains an appropriate level of expertise. (Paragraph 27) The Government has no plans to reduce further its bilateral work with rainforest nations and fully agrees with the Committee's comments about retaining an appropriate level of expertise.
Although not strictly a form of bilateral activity, DFID's support to Partnership Agreements between rainforest nations and the European Union under the FLEGT Programme, provides a vehicle for the UK to work effectively with rainforest nations on matters related to forests and the broader environment. Added to this, Defra continues to support some smaller but significant projects through bilateral funding, including through the Darwin initiative and the Sustainable Development Dialogues.
For example we are working closely with the Brazilian Government through the cross-Government UK-Brazil High-level Dialogue on Sustainable Development, which has a strong focus on forestry and natural resource management issues. Within this we are providing £140,000 to support a collaborative project run by the UNEP World Conservation Monitoring Centre (UNEP-WCMC) and the Brazilian Environment Ministry (MMA) which will assess the value of environmental services from Brazil's Protected Areas to the country's economy. This will also contribute to the international research study on The Economics of Ecosystems and Biodiversity (TEEB).
The UK Government acknowledges the importance of retaining UK expertise, but also on developing that expertise in the country where deforestation is occurring. Such capacity building through learning has a long term impact. Creating a small network of professionals in-country and internationally can also contribute to better in-country projects by boosting ability and capacity to influence wider strategic priorities in-country.

5. We welcome the Forest Carbon Partnership Facility and hope that it will influence thinking on how to reduce emissions from deforestation and forest degradation. If implemented effectively, the strategies that are developed under it could play a key role in helping rainforest nations shift to more sustainable land use. We are concerned, however, that action being taken under it could be undermining work the Government has done elsewhere to improve forest governance. In its response to this Report the Government should make clear what action it has taken to address these criticisms. (Paragraph 30) We are very conscious of the need to ensure that work we do in one area builds on and strengthens existing work.
In this way we have been working to ensure that strategies developed under the FCPF address issues of forest governance and build on existing national and international initiatives, particularly learning lessons from the FLEGT process. Full and effective consultation of forest-dependent indigenous peoples, and other forest dwellers, in the development of strategies is vital. Assessment of the first Readiness Preparation Proposals under the FCPF recognise the need for governance issues to be addressed as thoroughly as possible and we will continue working with the FCPF Facilities Management Team and stakeholders to achieve this.
The Government is providing £15m to the FCPF which aims to provide US$300 million split between a Readiness Fund (support for 37 countries to develop strategies to reduce emissions from deforestation and degradation) and a Carbon Fund (piloting payments to approximately 5 countries for reducing deforestation/degradation below an agreed level). The FCPF has been established, as have all the Climate Investment Funds, on the basis of equal representation of donors and recipients and in a pilot capacity. At the Participants Committee meeting for the Readiness Fund in June 2009, it was recognised that concepts of readiness, and the development of a strategy to reduce emissions from deforestation and degradation will need to evolve together. It was therefore agreed that Countries could enter into a Grant Agreement on the basis of a Readiness Preparation Proposal. This does not have to be a fully completed Plan but Countries will be expected to address outstanding issues and report on these to the Participant's Committee as they move forward.

6. We welcome the Government's wish to ensure that forest peoples' rights are recognised in the agreement at Copenhagen. We believe that eligibility for forest payments should be conditional on the protection of local communities. Commitment to a rights based approach might be evidenced by ratification of International Labour Organisation Convention 169 on Tribal and Indigenous Peoples; the UK Government should encourage rainforest nations to sign and ratify this treaty. (Paragraph 35) The UK supported the Bali Action Plan (2007) commitment that the needs of local communities and indigenous people will be addressed when action is taken to reduce emissions from deforestation. We were pleased that the Conclusions at Poznan (2008) invited Parties and accredited observers to submit their views on issues relating to indigenous people and local communities for the development and application of methodologies. We will continue to support developing countries in working out how best to achieve transparent and consultative REDD strategies, including through piloting community-based approaches to forest management. We will also work within the governance structures of the Forest Carbon Partnership Facility and Forest Investment Programme to promote the interests of local communities and indigenous people.
The UK is not planning to ratify ILO Convention 169 as there is no evidence that there would be any benefit to indigenous people in other countries by us doing so. However, we may encourage other countries with indigenous populations who would benefit to ratify ILO 169.

7. UK development assistance could increase greenhouse gas emissions and deforestation if not managed effectively. We urge DfID to ensure that the programmes and projects it funds bilaterally, including through arms length bodies such as CDC, and multilaterally, through organisations such as the World Bank, assist progress towards a low-carbon global economy and halt deforestation. We recognise that in certain cases projects that lead to managed increases in emissions and deforestation might be defended on development grounds; indeed many developing countries claim a right to increase their emissions because they are not responsible for current greenhouse gas concentration levels. But the need to reduce emissions, including those from deforestation, must now be included within developing countries' national development and growth plans; DfID should ensure that development assistance contributes to the development of a low-carbon economy. (Paragraph 40) DFID share's the Committee's view that its development assistance should promote a low carbon economy. We are working to identify and support patterns of economic growth that break the link between rising emissions and economic growth. DFID has funded a number of low carbon growth studies in the larger emitting Middle Income Countries (MICs) through multilaterals and think tanks including China, India, Brazil, Mexico, Indonesia and South Africa.
DFID's investments, whether they are for agricultural, infrastructure or other developments, are subject to environmental impact assessments. Multilateral finance institutions such as the World Bank also have safeguard policies. In the case of CDC, its investments, including those through other investment funds, are guided by an investment policy and investment code. DFID sets these two frameworks and the Board of CDC oversees implementation and governance.
Further, a joint Defra/DfID initiative on Valuing Ecosystem Services will look practically at how ecosystem services can be incorporated into economic development decisions and support wider efforts to build capacity for environmental management in developing countries, including in climate change adaptation plans. The international TEEB report (supported by Defra and DfID) will provide advice that attempts to mainstream the consideration of ecosystem service values for national and international policy makers, regional and local decision makers, businesses and citizens.

8. We welcome the Joint Nature Conservation Committee's work on the UK's global impact on biodiversity. This, combined with the Foresight Project on Global Food and Farming Futures, must be used by the Government to identify how to reduce the deforestation that results directly and indirectly from UK demand for commodities. This work should consider the consumption of all imported commodities that affect deforestation. The Government should take account of and engage with work being done on these issues by the European Commission. (Paragraph 42) We recognise that there is a need for a high quality evidence base to assess and highlight the real trade-offs made when converting forest land to alternative land-uses, and the effects of consumption on forests and other ecosystems. Projects like the JNCC's Global Impacts Programme, which integrate ecological and economic data, are key to developing this evidence base. We need to disaggregate costs and benefits between those who incur and receive them; gaining a full understanding of impacts allows Government to prioritise and to work out how to implement policy.
The Foresight Global Food and Farming Futures project is looking at how we can feed a future global population of 9 billion people healthily and sustainably. The project will look out to 2050 and take a global view of the food system, considering issues of demand, production and supply as well as broader environmental issues, including in relation to the wider externalities of production, consumption and the supply chain. Regional case studies are being commissioned to consider particular issues in more detail. For example a study is being commissioned from Brazilian experts to look at how this major food producing country might respond to future global food prices and what the consequences of this might be for land use, ecosystem services and biodiversity. Importantly, the project aims to catalyse substantial international action based on its findings. It is planned that the Foresight project will report by October 2010, and Government will work to ensure the relevant project findings are integrated into cross-Government strategies for tackling deforestation as they emerge.
We also acknowledge that efforts need to be targeted at both demand and supply side measures and the UK Government is working with business and Government partners nationally and internationally to develop and improve sustainability standards throughout product supply chains.
We recognise the important role of voluntary and mandatory sustainability standards. However, developing and agreeing sustainability standards is not a simple task, especially given the global and inter-related nature of food, fuel and other commodity markets—and the trade-offs between their various economic, social and environmental impacts. There remains much to be done to develop the scientific and economic evidence base for the full scale of the impacts associated with a range of commodities, and the greenhouse gas (GHG) emissions associated with both direct and indirect land use change. We aim to prioritise work to develop sustainability standards in those instances where there is potential for the most significant benefits.
For example, the UK Government has recently agreed to fund a collaborative project between the Roundtable on Sustainable Palm Oil and producers in South East Asia and big UK buyers. This will review, improve where possible, and increase take up of their sustainability criteria, thus increasing production and consumption of sustainable palm oil —a major agricultural commodity.
The Government's work on developing its public procurement policy is a further pragmatic step forward in which the Government aims to influence markets, and learn through practice how standards can deliver the outcomes we want. The Committee has already noted the value of our timber procurement policy, and we are currently considering how it might develop Public Procurement Policies for other commodities.
We are also engaging in the EU, including through the Sustainable Production and Consumption Round Table on food, and will be working with the European Commission and private industry to develop a common methodology to measure the environmental impact of food and consider how this should be applied at the European Community level.

9. A fundamental reassessment of the way in which the global agricultural system functions is needed. It is critically important that the Government's response to the global food crisis includes strong support for a global change in sustainable land use and an end to deforestation. (Paragraph 49) We are already looking closely at how we can promote sustainable land use in the global agricultural system. Our response to Recommendation 8 sets out some of this work, and the complicated issues with which we are dealing. We are additionally engaged in work around, for example, the Global Bioenergy Partnership to develop voluntary sustainability criteria and indicators (including in relation to food security) for bioenergy (see also our response to Recommendation 11), the responsible purchasing of timber by Government (Recommendation 14), and controls on the illegal timber trade (Recommendation 15). We are also involved in research strands to develop the evidence base to inform our work in this area, including the ongoing work of the Foresight project; research on the indirect impacts of biofuels on land use change; and on how we can increase global food production and productivity to meet global 2030 food needs in the most environmentally sustainable way (which we hope will inform the Foresight work).

10. While we welcome the Government and G8 response to the global food crisis and its call for a Global Partnership on Agriculture and Food, we are very concerned that the G8 has failed to address the need for sustainable production of agricultural commodities. It failed to act on agricultural subsidies, biofuel subsidies and other damaging trade-distorting measures. This suggests that the G8 countries are not committed to solving the developing ecological and food security crisis in a sustainable way. (Paragraph 50) We welcome the report's acknowledgement that the UK government has been at the forefront of the international response to the global food crisis, leading efforts through the G8, the Global Partnership for Agriculture and Food Security (GPAFS) and other fora, to increase global food security. This approach considers short, medium, and longer-term responses, underpinned by sustainable natural resource management, and taking account of both climate change adaptation and mitigation including in terms of investment in water management infrastructure. The Government's recent International Development White Paper "Eliminating World Poverty: Building our Common Future" draws on this and sets out our future ambition.
We recognise that food security, natural resources, climate change and poverty eradication are inextricably linked. An integrated approach to development is needed, one that maximises these synergies and manages any necessary trade-offs between them. This will help us meet future food needs—including underpinning our own food security here in the UK—without undermining the natural resource base (including forest resources) and the ecological services that it provides and on which the poor are most dependent, many for their livelihoods.
In this context, July's G8 Summit set out commitments to help ensure a more food secure world, including through the promotion of sustainable agricultural development for which leaders committed to mobilise $20bn over three years. GPAFS will be one mechanism to help achieve this. Leaders also recognised the need to work closely with developing countries to better integrate sustainable land management into national development and climate change plans, to further promote sustainable forest management with a view to reducing forest degradation and deforestation, and to continue efforts towards trade reform, including an ambitious, comprehensive and balanced conclusion of the Doha Development Round, to encourage more open and efficient markets.
We continue to develop the evidence base to inform our work in this area, including through the Foresight Global Food and Farming Futures project described above at Recommendation 8, and Defra has commissioned its own research into how we can increase global food production and productivity to meet global 2030 food needs in the most environmentally sustainable way, which we hope will inform the Foresight work. In addition, HMG's current research on the indirect impacts of biofuels on land use change will inform future policy.

11. We are concerned that the Renewable Transport Fuels Obligation and the Renewables Obligation are stimulating deforestation. Potentially damaging biofuels should not be promoted until the technology improves, robust mechanisms to prevent damaging land use change are introduced and international sustainability standards are agreed. The Government must ensure its policies do not stimulate or accelerate deforestation. (Paragraph 57) The Renewable Energy Directive (RED), which contains an ambitious target for the UK to source 10% of its transport energy from renewable sources by 2020, also contains mandatory sustainability criteria which all biofuels must meet in order to be counted. These include achieving a greenhouse gas saving of at least 35%, and they must not be sourced from areas of high biodiversity such as rainforests or wetlands. The RED and the Fuel Quality Directive (FQD—which requires the UK transport sector to achieve a 6% reduction in greenhouse gas emissions by 2020) are expected to be transposed into UK law by December 2010, and we will consult on options for implementing them early next year.
The UK is committed to these targets but we realise that more needs to be done to ensure the sustainability of biofuels, especially regarding their indirect impacts. The UK is already at the forefront of the debate into sustainable, cost effective biofuels. We are one of the first to establish a reporting system into the sustainability of our biofuels and the Renewables Obligation now requires all biomass generators in the UK to declare certain sustainability reporting information—including country of origin. We are building on the EU sustainability criteria by chairing work in the Global Bioenergy Partnership to develop voluntary sustainability criteria and indicators for bioenergy, including biofuels. The Government is also supporting the development of sustainable advanced (or next generation) biofuel technologies. We are also pursuing a comprehensive research programme to help us identify the "good" biofuels, those that do not cause environmental or social damage.
The European Commission needs to produce a report on indirect land use change in 2010, and review by 2014 whether the 2020 target can be met sustainably. The UK will be focusing its research efforts on trying to find a workable methodology for accounting for the indirect impacts of biofuels under the RED, to inform our policy at UK, EU and international levels.

12. It is wrong to apply sustainability standards to commodities used for biofuels but not for food and we recommend that the Government develops sustainability standards for all agricultural commodities. The Government should work on ending damaging agricultural subsidies in the EU and other developed countries so that standards can be agreed. A mechanism that rewards countries for not converting forests to agricultural use will make it possible to reach international agreement on sustainability standards. (Paragraph 58) Many thousands of standards, benchmarks or comparative rating systems, for a huge range of commodities, products and materials, have been developed and publicised by national and international standard setting bodies, Governments or other parties. This has been essential to support many market interventions which drive sustainability, such as legal minimum standards, voluntary initiatives, fiscal measures, procurement standards and product labelling. The UK Government has supported the use of standards and benchmarks to improve agricultural sustainability through benchmarks which support industry standards for legal and sustainable timber, the EU Ecolabel e.g. for wooden and paper products and the Fairtrade label, as well as minimum legal standards for managing the environmental impacts of farming in the UK.
The Government has also been working with the British Standards Institute and the Carbon Trust to develop a Publicly Available Specification to measure embodied greenhouse gas emissions which can be applied to food and drink products, and most UK supermarkets also require producers to supply food which is produced to the standards laid down by Assured Food Standards or Global G.A.P., which includes standards for the working conditions of agricultural labourers). Some supermarkets produce their own supplier protocols to ensure food safety and environmental benefits. We are looking into ways that the Government might support more rapid progress in supermarkets decreasing the levels of deforestation which might occur as an indirect result of purchasing policies, for example on palm oil through the Roundtable on Sustainable Palm Oil (see response to Recommendation 8).
Further, we have prioritised work to develop sustainability standards for biofuels, which have been specifically developed to reduce reliance on fossil fuels and which need to be genuinely sustainable if they are to appeal to potential consumers.
We acknowledge the significant environmental benefits to be gained through sustainable agriculture. The UK will continue to push for further reform of the Common Agricultural Policy so that farmers are free to produce in response to market and consumer demand, with future CAP expenditure focused on securing from EU farmers environmental benefits which would not otherwise be delivered under market conditions. The CAP should be non-distorting of international trade and the world economy and provide for an agricultural sector which is sustainable, without reliance on subsidy or protection. The sector must be truly competitive, providing consumers with safe, good quality, nutritious food which they can afford and which they can trust.
Finally while the UNFCCC process is not, in itself, tasked to develop or endorse sustainability standards for commodities, our work towards agreeing a mechanism to reward countries for REDD will create incentives to move away from unsustainable practices in favour of behaviour that benefit the forests, by recognising the value of the full range of services they provide.

13. Three years ago we called for legislation to ban imports of illegal timber. No ban was introduced and illegal timber remains an unacceptable part of the UK timber trade; it is possible that the UK is one of the world's largest importers of illegal timber and illegal timber products. This failure to ban illegal timber means that the UK is undermining efforts to improve forest governance and contributing to deforestation and its associated emissions. (Paragraph 61) The Committee is right to stress that the trade in illegal timber is an unacceptable, and that the UK has a central role, along with other major consumer countries, in developing policies to tackle this trade. We fully support the Committee's findings that that any proposed REDD framework will only deliver its objectives if the UK puts in place strong, demand side measures to tackle the problems of illegal logging and deforestation.
The UK remains committed to working within the EU in taking forward the FLEGT process. We are pleased with the signing of the first two Voluntary Partnership Agreements (VPAs) since the launch of the Inquiry. DFID has since committed £6.5 million for the implementation of the VPA with Ghana. The Government will continue as key player in the EU process to take this work forward.
The European Commission's proposal for a new EU Due Diligence Regulation to tackle the illegal trade continues to be discussed by EU Member States and the European Parliament. The UK government consulted on the proposal in May this year. Responses to this consultation confirmed broad support for measures to put in place demand side measures to tackle the illegal trade in a proportionate and targeted fashion. The UK will work with the Swedish Presidency of the EU, taking account the range of views on the proposal, in efforts to reach political agreement to the proposal in EU Council by the end of the year. Further, the UK has also tabled a proposal for a prohibition on the first-placing of illegal timber on the European Community market, with the aim of strengthening the Regulation.

14. The Government has a policy framework to ensure the procurement of legal and sustainable timber by central government but it has been poorly enforced. We welcome Defra's development of a timber monitoring and tracking system to address this problem; an effective system is needed across Whitehall at the earliest opportunity. The Government should consider introducing penalties to motivate departments and companies to implement policy. The Government must also insist that local authorities and the wider public sector adopt timber procurement policies. (Paragraph 66) The Government agrees that responsible purchasing of timber is an important step in tackling deforestation and climate change. Defra published in July 2009 the timber reporting pilot study (http://www.proforest.net/cpet/implementation-in-practice/timber-reporting-pilot-study). The study recommended that:
1. Reporting on timber for all major construction projects (new builds and refurbishment over a threshold value) should be compulsory (section 4.1) and
2. For all other timber and wood products not purchased for a major construction project, that the relevant body would be required to operate an appropriate system of internal spot-checks and audits, supplemented by an external programme across government (section 4.2).
Defra will be following up on the recommendations and views the report as a key step towards setting up reporting and monitoring systems, which will play a key part in Defra's strategy to implement the UK Government's revised timber procurement policy that came into force on 1 April 2009. We will consider the issue of possible penalties within this context.
We are also implementing an awareness raising campaign targeting all central government departments and key public sector projects related to timber use, such as Building for the Future. We are also supporting work to engage Local Authorities to develop and implement a responsible timber procurement policy through the Central Point of Expertise on Timber (CPET), WWF UK and the UK Timber Trade Federation. A newly developed toolkit, a helpline and training to assist Local Authorities is available free from CPET.
In addition Defra is working closely with the Olympic Delivery Authority (ODA) who have set high and rigorous timber procurement standard and created a Timber Supplier Panel to ensure that only legal and sustainable timber is used during the construction of the London 2012 Olympic and Paralympic Games venues and infrastructure.

15. We support the Government's desire to strengthen the current EU proposals on control of the illegal timber trade. The Government must work with the EU to make it an offence to place illegal timber and timber products onto the market and to introduce robust sanctions to enforce these rules. (Paragraph 70) As set out above, the UK included a proposal for a prohibition on the first placing of illegal timber on the EU market as part of our public consultation on the Commission's proposal. This proposal received a great deal of support from a range of stakeholders, although others expressed concern about the impacts of such a prohibition on certain operators. We will take forward discussions on this proposal in a manner which respects these concerns. The UK believes that the additional inclusion of a prohibition will not, per se, increase the general cost of implementing the Regulation for operators.
The Government reiterates that a prohibition on the first placing of illegal timber on the EC market will only be successful if it is agreed by a range of players, not least other EU Member States and the European Parliament. We will continue to work to convince others of the importance of strengthening the Regulation in this way.
The Government also acknowledges the importance of robust penalties and an enforcement regime if the Regulation is to meet its stated objectives. We commit to further discussions on this issue as part of our implementation of the Regulation, once agreed.

16. A system to pay for sustaining forests is vital. But such a system could be counter-productive if it allowed developed countries to continue emitting unsustainable levels of greenhouse gases or if it diverted funds away from projects that enable developing countries 'leap-frog' carbon intensive development. (Paragraph 78) We agree that including forestry in a global deal should not be a way of avoiding action to de-carbonise either developed or developing economies—we are seeking the most ambitious deal we can achieve in Copenhagen. Domestic abatement has to account for the bulk of developed country effort and we need to ensure that financial flows from the carbon market continue to support low carbon development in developing countries. This will require stringent targets for developing countries and a staged approach to ensure the introduction of forestry credits into the carbon market does not undermine the global carbon price.
We welcome the European Commission's leadership and the December Environment Council Conclusions which suggests that a new market mechanism for forest credits should be established on a trial basis and deforestation credits could be valid for government compliance with post 2012 commitments.

17. We do not believe that a forest payment system based on carbon markets will avoid these problems at present. Forest credits should not be allowed in the EU Emissions Trading Scheme at this stage and should be considered only in the future after the impact of such credits has been tested. (Paragraph 79) While we think there is an important role for carbon markets in the longer term, we agree that we should not bring forest credits into company based trading schemes at present. However as capacity develops, rules on the amount of forest credits that can enter the market can be used to ensure the market is not destabilised. We therefore welcome the provision contained in the EU Emissions Trading Scheme Directive for new crediting mechanisms under an international agreement. This gives the flexibility to include credits from avoided deforestation and other land use activities in future phases of the EU ETS, once we have measurement, reporting and verification provisions in place, an understanding of the effect on carbon prices and long-term commitment to reduce emissions from deforestation and forest degradation.

18. The Government must suggest ways to pay for sustaining forests. These should include non-market funding sources, such as the hypothecation of a percentage of EU Emissions Trading Scheme revenues and how forest credits could help to meet non-traded sector emission targets. (Paragraph 80) The Prime Minister made a proposition that all countries should work toward raising finance to combat climate change, including avoiding deforestation, to a level of around $100bn per year, derived from multiple sources, including both public and private funds and carbon markets. He has proposed that some of the public finance could come from a limited amount (up to 10%) of official development assistance where it clearly meets both poverty reduction and adaptation or mitigation objectives. The rest would come from a combination of new and additional sources of finance. The UK would be willing to support the approach proposed by Norway, which is an "automatic" mechanism for generating predictable and credible flows of international public finance by auctioning a small proportion of international emissions allowances.
The funding needed to meet the EU's target of halving deforestation by 2020 is estimated by the EU Commission to be in the range £10 billion to £20 billion a year. Meeting this need will require a range of funding sources and instruments.
Public funds could also be used to encourage private sector finance into sustainable forest enterprises by sharing the risks to private investors through public-private partnerships.
We will work to build consensus on options for payments for forests, including through the Informal Working Group on Interim Finance established following a meeting of world leaders hosted by his Royal Highness the Prince of Wales on 1 April 2009.The aim of the Working Group is to examine interim financing needs, mechanisms and architecture to help address tropical deforestation with the aim of delivering a final report to inform the Copenhagen climate negotiations in December.

19. In the search for a suitable mechanism to pay for forests, the Government must also examine the supply- and demand-side issues we have identified. A forest payment mechanism by itself will not stimulate the necessary governance reforms in all countries. The Government must consider how to link payments for forests to reform of governance in rainforest nations. It must also act bilaterally to build capacity and the necessary institutions in rainforest nations. Rainforest nations with severe governance problems will find it extremely difficult to reduce emissions and they could be rewarded for making verifiable efforts to develop independent judicial systems and reform legal, fiscal and land tenure systems that will help halt deforestation in the future. (Paragraph 81) A payment mechanism for REDD has yet to be agreed by the UNFCCC but we anticipate that there will be three phases in the development of such a mechanism:

An initial phase where funding is provided based on a country's commitment to develop a national REDD strategy, and to support the necessary capacity building required for implementation;
A second phase where funding is provided to implement policies and measures that reduce emissions and progress is based on proxies such as the trend in area of deforestation;
A third phase where payments are made on the basis of measured reported and verified results.

The second phase of implementation of policies and measures provides the main opportunity for developing the linkages between payments and governance reforms. Capacity building as part of phase one could also provide support for the development of frameworks and for taking forward reforms. We are working through the IWG-IFR to develop ideas on how the phases can be funded until an agreement is reached under the UNFCCC.
DFID is supporting governance reforms in a number of rainforest nations, primarily through its Forest Governance and Trade Programme, linked to the EU FLEGT Action Plan 2003, but also in other ways. FLEGT and REDD are concerned with the same set of constraints: market failures, lack of institutional capabilities, weak regulatory capacities and corruption. Both require: inclusive multi-stakeholder planning processes; clarification of resource rights and tenure and avoidance of negative consequences for local communities; strengthening of law enforcement and judicial systems; credible means of reporting and verification which build buyer confidence; and control of international leakage.

20. We recommend that payments to forest nations to reward reforestation, afforestation or avoided deforestation are designed to protect primary and natural forests. Biodiversity safeguards should be built into any agreement reached at Copenhagen in December. Restoration, reforestation and afforestation will also be significant contributors to halting dangerous climate change and should receive significant support. Balancing these objectives without making a scheme that is so complex that participation is discouraged is the key dilemma in drawing up any international agreement. (Paragraph 88) Reducing deforestation and degradation has real potential to deliver a positive impact on biodiversity. Primary forests are generally more carbon dense, biologically diverse and resilient than other forest ecosystems. The December EU Council Conclusions supported the use of gross deforestation rates. This would include only primary forest in a country's avoided deforestation reference level and so prevent simply chopping down trees in one area and replanting in another. Action to reduce forest degradation, plus afforestation and reforestation would be counted additionally.
The Bali Action Plan recognised the relevant provisions of the Convention on Biological Diversity (CBD) as well as other relevant international environmental agreements and we are seeking language in the Copenhagen agreement to ensure that the maximum environmental benefits of paying for the carbon mitigation services of forests are achieved.
The UK has been leading the way in looking at this. Dr Bob Watson, DEFRA Chief Scientist, chaired a meeting of experts on biodiversity and climate change convened under the Convention of Biological Diversity (CBD), to provide biodiversity-relevant information to the UNFCCC. The first part of this work was presented to the UNFCCC in Poznan, and the main messages from the second meeting were made available to the UNFCCC SBSTA in June 2009. A final, peer reviewed report, will be submitted to the UNFCCC in Copenhagen.
Finally, the UK recognises the important role of forest restoration in tackling climate change and achieving sustainable development goals and has been actively promoting this globally. The UK, with IUCN and WWF are founder members of the Global Partnership on Forest Landscape Restoration (GPFLR) which was formally launched by the UK Government in 2003. Its aim is to promote a responsible approach to the use of forests in the restoration of degraded land. The aim of this approach is to benefit both communities and the natural world. A number of governments, the World Bank and the FAO are members of the partnership. We will be exploring the opportunities for Forest Landscape Restoration to contribute even further to achieving climate change mitigation and adaptation objectives over the coming months.

Greening Government[121]

Conclusion/Recommendation Government Response

1. The quality of data reported by Government departments for the Sustainable Development in Government Assessment has improved substantially in recent years. Further improvement requires a formal process of audit and verification. We recommend that the Government undertake an assessment of the cost and feasibility of implementing a system of external verification of the data submitted by departments. (Paragraph 6) Government agrees that establishing good quality data collection and reporting systems is a key step in understanding and addressing the environmental impact of its operations. Departments have taken action in the past year to improve in this area; contributing to both the better understanding of Government's performance, and to understanding the steps that can be taken to improve it.
To build on this, the CESP is currently working to produce general definitions of data quality for key areas of SOGE reporting. This will enable both the CESP and departments to work to a consistent standard across Government, as well as forming a shared view of data quality and areas where further improvements may be required. The CESP will examine, in a project planned for autumn and winter 2009, the value that external verification of the SDiG data could add to the new processes, under which CESP rather than SDC will collect and verify departmental performance data, which are being piloted this year.
In addition, Government is taking further steps to improve the quality of data from departments. For example, an initiative to purchase and install gas and electricity automatic meter reading (AMR) meters across the Government estate is currently being developed by DECC and the Office of Government Commerce. These meters would provide more accurate billing and improved data collection, enabling departments to target reductions in energy consumption. In addition, AMR installation will help to improve departments' performance in the first year of the Carbon Reduction Commitment (CRC) league table, and will make CRC reporting easier and clearer in subsequent years.

2. The Sustainable Development Commission has awarded Government four stars (out of a possible five) in its rating of pan-government performance against the Sustainable Operations on the Government Estate targets; this represents an improvement of one star compared to the 2006-07 reporting period. We welcome the progress that Government has made against its SOGE targets in a number of key areas, including waste, water consumption and emissions from road travel. Performance against a number of important targets has, however, been poor. The Government must ensure that in the 2008-09 reporting year it is on track to meet all of its SOGE targets. Where the Government is meeting its targets, it must not be complacent; if progress against a given target is slowing, it must offer an explanation. (Paragraph 9) The Government agrees with this recommendation. The Delivery Plan for Sustainable Procurement and Operations on the Government Estate and the updates on progress towards this plan that are published every six months set out progress towards the Government's targets and provide explanations of performance against targets where this is slowing. Through the information provided in departmental reporting, we believe that we are on track to meet the key Sustainable Operations on the Government Estate (SOGE) targets such as those relating to carbon emissions reductions.
The Committee noted that progress against the renewables target decreased from 2006-07 to 2007-08. Given the doubts about the ability of green tariffs to deliver additional carbon emission reductions, government departments changed focus from purchasing renewable tariffs to investing in energy saving technology. Despite this reduction, the 2007-08 SOGE target was still exceeded, with 22% of electricity purchased coming from renewable sources.
Performance data for the 2008-09 reporting year will be published with the Government's Delivery Plan Update in December alongside revised forward plans and trajectories. These six-monthly updates provide information on progress against the targets and highlight key issues affecting delivery. For example, the update published in July 2009 highlighted that Department for Work and Pensions' progress against the target for reducing carbon emissions from offices target is likely to be affected by the recession due to the department's pivotal role in the employment market. This includes extended opening hours and potentially increasing staff numbers to support people back into employment.
The updates also set out the actions that central Government plans to take to ensure the targets are met in 2010-11, and report on activities that have taken place across Government over the previous period as well as key priorities for the next period.

3. It is completely unacceptable that central Government departments are failing to comply with mandatory requirements. A marked improvement in the Government's performance against its targets for the use of mandated mechanisms in the 2008-09 reporting year is needed. (Paragraph 11) The mandated mechanisms are process measures which should help departments achieve the sustainability outcomes measured by the SOGE targets. Government agrees that all bodies covered by the current SOGE targets must comply with the mandated mechanisms This should help to achieve actual sustainability outcomes as measured by the main targets (i.e. reductions in carbon emissions, waste arisings, etc).
Data on performance against the mandates for the 2008-09 reporting year will be published in the December 2009 Delivery Plan Update. The CESP is working with departments to identify and address any barriers to complying with the mandates. For example, we are currently running a project to clarify and raise performance on the BREEAM mandate for new buildings and major refurbishments. The current consultation on proposals to review the SOGE framework involves considering the role that all the mandates play in supporting delivery and this will be fed into the resulting revision of the framework. Our answer to question 11 provides further detail on the review of the SOGE framework.

4. The Government is in a position to exert a powerful influence on its own suppliers and on the wider economy. Recognition of this potential must result in a serious commitment to sustainable procurement and decisive, radical action to ensure that the Government meets and, where possible, exceeds its own targets on procurement. The creation of the Centre for Expertise in Sustainable Procurement is a step in the right direction; we hope to see solid evidence of its effectiveness in the data reported during 2008-09. In particular, we expect to see a significant increase in the number of departments including clauses for Quick Wins or extended mandatory product standards in all relevant contracts. (Paragraph 13) The Government agrees that it should use its purchasing power to influence the market to develop more sustainable products and services, and is committed to improving progress against its sustainable procurement targets. The Government has published, over the last 12 months, policy guidance on a wide range of aspects of sustainability and procurement:

Buy and Make a Difference
Buy Green and Make a Difference
Considering Energy Efficiency in Procurement
Making Equality Count
Promoting Skills through Public Procurement
Supported Factories and Businesses
Top Quartile Guidance

Priority actions for Government in 2009-10 (as set out in the July 2009 Delivery Plan Update) involve:

working with suppliers on a voluntary basis to improve the sustainability of their operations and stimulating the market to develop more sustainable solutions;
procuring more sustainable goods and services by delivering on existing commitments such as meeting mandatory product standards ('Quick Wins').

We are working across Government to develop a shared vision for sustainable procurement, which will feed into the sustainable procurement targets review (December 2009).
Talking with suppliers about the sustainability of their operations and more sustainable solutions has been a particular area of progress for Government in the last six months. Twelve central Government departments have participated in a collaborative sign-up to the Carbon Disclosure Project (with over 300 suppliers approached). The BIS-led Forward Commitment Procurement competition is encouraging central and local Government to work with suppliers to identify new ways of addressing future public service delivery.
Increasing the inclusion of 'Quick Wins' across central Government contracts continues to be a priority. In 2009-10, CESP is taking forward a range of initiatives to increase awareness and understanding of product standards, which includes working with Defra to implement a more streamlined process for engaging with experts on cost-benefit analyses and market capacity appraisals. CESP is also reviewing the factors influencing 'Quick Wins' take up and the barriers to compliance, with a view to providing targeted departmental support. We are currently consulting on proposals to revise the Sustainable Operations on the Government Estate (SOGE) targets. The proposals being consulted on highlight the importance of Sustainable Procurement and include incorporating the use of 'Quick Wins' in the sustainability targets. If as proposed the SOGE scope is extended to include a wider range of Government organisations this may further increase the uptake of 'Quick Wins' across Government. In addition to improving 'Quick Wins' take-up, Government is using the collaborative procurement of common goods and services to contribute to the delivery of SOGE targets and sustainable procurement commitments. Increasing percentages of central Government spend (80% in the categories of fleet and energy) are being channelled through pan-government collaborative procurements, and OGC is working to embed sustainability across these categories of spend.

5. We are unconvinced by the claim that the Government is on track to exceed its 2010-11 target for the reduction of carbon emissions from offices. It is not sufficient for it to base its projections on unverified figures; delivery plans are meaningless if they are not supported by evidence. We recommend that, in the next iteration of its Delivery Plan, the Government set out in detail the means by which it intends to meet this target and define what it means by "carbon management". (Paragraph 18) Government agrees that transparency and consistency are important when reporting both current performance and forecast delivery against key targets. This includes the reporting on carbon emissions from the office estate, where Government is forecasting faster progress in the coming years to meet and possibly exceed the 2010-11 target of a 12.5% reduction against the baseline. The forecasted delivery is based on the trajectory data that is submitted to the Office of Government Commerce (OGC) by central government departments.
The publication of delivery trajectories in the first Delivery Plan (published in August 2008) was the first time Government had identified at a Government and individual department level: 1) the projects planned in order to meet the SOGE targets, and 2) the contribution each project would make. These plans are approved by the Permanent Secretary in each department. Departments are able to draw on various resources to inform their planning. These include: the list of actions to increase energy efficiency in the OGC 'Considering Energy Efficiency in Procurement' guidance, which provides information on typical energy savings, costs and payback periods; similar information on energy saving technologies on the Salix Finance website; and expert advice from bodies such as the Carbon Trust.
The pan-government trajectories for each of the five target areas are developed through the consolidation of baseline and performance data for each department, 'carbon management' in this context refers to the actions being taken by an organisation within a strategic framework for managing its carbon emissions as part of its ongoing business practice. In many cases, this will involve working with the Carbon Trust through their Carbon Management Programme to systematically prioritise and implement projects with the greatest business and carbon impact. For the next iteration of the trajectories, to be published in December, CESP will work with departments to establish common definitions of terms such as these, to ensure greater consistency in departmental forecasts.

6. We welcome the Government's commitment to revise and update its Delivery Plan on a quarterly basis, and expect future versions of the plan to be based on robust and verified data. Every department must produce a credible, evidence-based plan of how it will make progress against all of the SOGE targets. The plans must make clear how this activity is resourced. (Paragraph 20) Government is committed to updating the Delivery Plan twice a year. The next update (to be published in December) will include performance data for the period 2008-09 and updated delivery trajectories for each department, setting out the plans they have in place to build on their performance to date and ensure they meet the 2010-11 targets.
In addition, as part of its commitment to improving the quality and timeliness of sustainable operations performance data, the OGC has modified its ePIMS database to enable departments to report quarterly on SOGE data on both an individual property basis and/or on an organisational level. This will enable departments and the OGC to understand the cause and effects of initiatives implemented and also identify the 'big win' initiatives. This closer monitoring of performance data will enable departments to have greater confidence in the projections data they provide for the six-monthly Delivery Plan Update trajectory graphs.

7. It is not sufficient for cost/benefit analyses to draw on current energy costs in calculating the savings that might result from investment in measures to reduce carbon emissions. The Government must assess precisely the future cost of not making significant investment to reduce carbon emissions now. Without such an assessment, it is impossible for Government departments to compare accurately the costs of options available to them. If the Government itself is unable to accurately forecast the cost of compliance with its own policies, it is difficult to understand how those in the wider public sector and in the private sector can be expected to do so. (Paragraph 24) The energy market is extremely volatile and prices can vary significantly on a daily basis with dramatic rises and falls over a 12 month period. Moves of plus or minus 20% in a single month are possible. Government economic analysts do not rely on current energy prices to assess the costs and benefits of investments in measures to reduce carbon emissions, but instead use projected energy prices which increase over time. Energy cost savings in a particular year are valued at the projected energy price for that year. Analysts consider a wide range of scenarios for future energy prices, which are derived from the DECC fossil fuel price scenarios. Energy savings also deliver other benefits, such as reduced greenhouse gas emissions and improved air quality. Cost-benefit analysis also values these impacts. Levels of avoided greenhouse gas emissions—for which the Government published revised valuations on 15 July 2009 (Carbon Valuation in UK Policy Appraisal: A Revised Approach)—also increase over time.
Government impact assessments evaluate the costs and benefits of investing to reduce carbon emissions in comparison with the costs of a business-as-usual scenario. DECC is shortly to lead a cross-cutting review of energy efficiency in the public sector as part of the Public Value Programme. This study will help to gauge the size of investment required to realise potential savings, as well as the feasibility of implementing various low-carbon measures, the barriers to doing so and the timescales over which such work would be possible.

8. Investment based on the best available information is crucial to the delivery of any programme that aims to deliver sustainable operations. Many of the changes needed to meet and exceed the SOGE targets require an initial outlay that is greater than the "business as usual" alternative. Such increased up-front costs are in many cases more than compensated for by the savings that can be realised in the longer-term. If the Government is to succeed in convincing the wider world of this, it must be prepared not only to make the necessary investment in sustainable operations, but also to make the case for sustainability by publishing clear calculations of the costs and benefits it entails. (Paragraph 26) The HMT Green Book states that officials are rightly required to achieve value for money (VFM) in procurement and operational activities and that VFM can't be achieved simply by paying the lowest up-front costs. Achieving true VFM requires that all the costs and benefits—including environmental costs and benefits—of an investment, are taken into account over the whole duration of that investment. The OGC is currently developing practical guidance that will help procurement practitioners make these VFM decisions. Furthermore, the UK Sustainable Procurement Action Plan states that, where departments are struggling to pay upfront for a sustainable choice that represents VFM in the longer term, they should raise this with HMT.
Specifically on reducing carbon emissions, we appreciate that to improve energy efficiency and to reduce costs, immediate financial and carbon savings may require 'invest to save' programmes. Currently, the Salix energy efficiency fund provides 100% interest-free loans to the public sector to invest in low carbon technologies with a pay-back period of under five years. £54.5m was announced in Budget 2009 for the scheme, and as of the end of September over £25m has been committed. This will allow these organisations to overcome capital constraints and invest in simple but effective energy efficiency technologies with a short pay back period such as boiler replacements and controls, cooling and heating controls, lighting upgrades and controls, insulation, office equipment improvements, network PC management and so on. Additionally, the funding includes an additional £45m for small-scale renewables.
In addition, DECC is shortly to lead a cross-cutting review of energy efficiency in the public sector as part of the Public Value Programme. This study will provide evidence on which future investment strategies can be built. And from 2010 departments will be part of the Carbon Reduction Commitment which will help make the business case for energy efficient decisions.

9. The update to the Government's Delivery Plan, to be published in summer 2009, must contain a detailed explanation of how departments will participate in the Carbon Reduction Commitment, and of how this participation will interact with the SOGE Framework. It must also explain how the Government intends to minimise the risk of large transfers of public money to the private sector as a result of poor performance by Government departments. We also expect it to contain an assessment of the possible financial implications, both for central Government and for the wider public sector, of participation in the scheme. (Paragraph 30) Departments that reduce their energy consumption and meet their 2010/11 SOGE carbon emission targets will benefit earlier from reduced energy bills and will have to purchase fewer allowances when the Carbon Reduction Commitment (CRC) scheme begins. Savings on energy bills are likely to outweigh any costs of participating in the CRC. Government is keen that departments continue to implement measures every year to reduce their emissions—as recommended by the Environmental Audit Committee—and believes that it makes financial and environmental sense to strive for immediate emissions reductions, rather than waiting until the CRC begins before reducing emissions. DECC is working closely with the OGC to prepare Government departments for the CRC's introduction, and a cross-departmental working group has been established to provide bespoke advice for departments.
Emissions from Government departments, qualifying public bodies and large businesses will be covered by the CRC from April 2010. Illustrative figures published as part of the CRC's partial Regulatory Impact Assessment (RIA) indicate significant net present value savings from CRC participation for the wider public sector as a whole. An updated RIA will be published in early October as part of the package for Government's response to the CRC consultation later in the year.
The EAC's Greening Government report was published after Government's July 2009 Delivery Plan Update, so the above recommendation could not be taken into account. Therefore, we will include an assessment of any possible financial implications for central Government from implementation of the Carbon Reduction Commitment (CRC) in the next Update (due for December publication). As discussed elsewhere in this response, government continues to support departments to reduce emissions and to improve the likelihood of their strong performance in the CRC league table. Government departments are demonstrating leadership in emissions reduction by their inclusion in the CRC, regardless of their size.

10. A revised SOGE Framework must provide targets that are challenging enough to achieve the scale of change required to deliver sustainable operations. They should reflect the level of the Government's own ambition on sustainable development and climate change. The revision of the framework must also address incoherencies in the current system, and must produce targets that work together to drive progress towards sustainable operations. (Paragraph 34) [See combined response under recommendation 11]

11. The SOGE Framework must aim to cover the environmental impacts of all Government business. Targets for sustainable operations must be applied as widely as possible, and the reporting of performance against them must be made mandatory. It is not necessary for uniform targets to be applied across the board; they may be tailored where appropriate. We urge the Government to set out a detailed timetable for the extension of the scope of the SOGE Framework and to develop suitable mechanisms for the monitoring of performance against the targets. We also recommend that the Government assess the costs and benefits of extending the Framework. (Paragraph 36) The Government is currently conducting an inter-departmental consultation on the review of the SOGE targets, with the intention of launching a revised set of targets by the end of the year. We are including the Sustainable Development Commission in the target review consultation in order to ensure that any revised framework delivers the right level of ambition for Government.
In reviewing these targets we are seeking to clarify and expand the scope of the framework, and this includes considering the mandatory inclusion of non-Ministerial departments and Executive NDPBs who have so far reported on a voluntary basis.
In addition to expanding the scope, we need to make sure that the revised targets are re-aligned with policy objectives which have changed over time (including the carbon budgets framework and the Waste and Water Strategies), and that the targets are strengthened in regard to sustainable procurement. This should help departments use sustainable procurement of goods and services to help meet the operations targets.
The consultation package is supported by an impact assessment which considers the cost and benefits associated with the revised targets but we also recognise the non-monetised benefits including: positive impact on the environment, innovation, and demonstration of Government leadership to citizens and to the private sector.

12. Offsetting is not a substitute for action to reduce emissions; all other options must be exhausted before offsetting is considered. The Government must show clearly how the Government Carbon Offsetting Fund (GCOF) is being used and must provide assurance that options for reducing emissions have priority. The use of GCOF must be transitional and departmental delivery plans should show how emissions that are currently offset will be reduced in future. The Government should publish its estimates of the amount to be spent on offsetting each year and the Chief Sustainability Officer should assess whether this spending constitutes value for money. (Paragraph 40) The Government has a hierarchy of actions on CO₂ emissions which emphasises the need to avoid and reduce emissions before offsetting is considered. This is demonstrated in the SOGE targets, which prioritise domestic emissions reductions ahead of offsetting, and in carbon budgets, through which the Government has set a zero limit on use of offset credits to meet the first five-year budget (excluding the use of credits in the EU ETS) and intends to do the same for subsequent budgets. However, the Government believes that offsetting has a legitimate role in tackling climate change by delivering emissions reductions that would otherwise not happen. Offsetting provides a method of compensating for emissions from sources that are likely to remain high-carbon in the foreseeable future, such as aviation.
Details of the first phase of the Government Carbon Offsetting Fund (GCOF I)—covering emissions from 1 April 2006 to 31 March 2009—are available on the DECC website. Buying Solutions, in partnership with DECC, is currently procuring for GCOF II which will primarily cover central Government air travel emissions from 1 April 2009 to 31 March 2012, but will also be available for the wider public sector to offset emissions from a variety of sources. This second phase will facilitate the delivery of offsetting commitments once they have been made. It will not drive those commitments. The Government will openly disclose details of the Clean Development Mechanism projects funded through GCOF II, and the public sector emissions that are being covered by the offset credits. Guidance for the use of GCOF II will stress the hierarchy of actions needed to tackle climate change and to ensure appropriate use of the fund.
Offsetting is effectively transitional; the amount of offsetting required will decline as emissions are reduced. However, the UK Low Carbon Transition Plan makes it clear that departments will be forced to purchase offset credits if they fail to make the necessary reductions to meet carbon budgets. Carbon Reduction Delivery Plans will record departmental progress on emissions reductions.
HM Treasury is currently consulting on introducing sustainability reporting standards for the public sector, which include the requirement that departments disclose their annual expenditure on accredited offset schemes, and on GCOF in particular. In the meantime, DECC will consider how best to estimate the scale of offsetting through GCOF II, given the likely imprecision of emission predictions and the variation of offsetting costs as carbon markets evolve.

13. It is perhaps inevitable that there should be variations in departmental performance against the SOGE targets, but the scale of variation recorded is evidence that something is wrong. It is vital that the Centre of Expertise in Sustainable Procurement, overseen by the Sustainable Procurement and Operations Board, provides centralised co-ordination to ensure that all departments are maximising their capacity to meet their SOGE targets. We urge the Government to continue to work with the Sustainable Development Commission to improve the ways in which best practice is shared between departments. (Paragraph 43) Government recognises that each department is different and faces different challenges.
The CESP has been established to support departmental performance improvement by providing central coordination. It does this in the following ways:

Performance Management: We work with departments to improve the timeliness, consistency and accuracy of performance data for sustainable procurement and operations, to provide robust view of current performance, and inform future decision making.
Sustainable Operations: We work with practitioners and policy makers to support delivery of the SOGE targets and mandates.
Sustainable Procurement: We facilitate the development of an aligned approach to sustainable procurement and collaborative working groups for its achievement across central Government departments.
Capability & Leadership: We have developed a high-level practical strategy and an implementation plan aimed at embedding sustainable procurement and operations within central Government departments, with the support of the OGC. The main focus is on improving knowledge, skills, awareness and practice, leadership commitment and attitudes and behaviours.

The CESP works closely with the SDC in all of these areas. SDC representatives sit on CESP governance boards and meet regularly with CESP, Defra and DECC officials. The CESP intends to continue and further build this close-working relationship.
The CESP's current projects to improve the sharing of best practice and to facilitate greater collaboration among departments are set out in the July 2009 Delivery Plan Update. They include:

the facilitation of cross-government discussion and best practice sharing through running events for and encouraging networking between an 80-strong network of sustainability practitioners.
the publication of a suite of case studies, highlighting the achievements of different departments and giving information and contact details to enable others to follow their lead.
the collaboration with Kirklees District Council and DWP to organise a practical, hands on event bringing together over 200 local and central Government sustainability practitioners to share ideas and experience.

14. We deplore the continuing failure of a significant portion of Executive Agencies to report their performance against their Sustainable Operations on the Government Estate targets. The ability of the Centre of Expertise in Sustainable Procurement to ensure that Executive Agencies report their performance will be an important test of the effectiveness of the recent changes made to governance arrangements. We see no reason why all Executive Agencies should not report their performance against the SOGE targets for the 2008-09 period. We will be pursuing any compliance failure with the relevant Chief Executive directly. (Paragraph 45) Government agrees that it is important that all bodies covered by the SOGE framework report progress towards meeting the targets. The Chief Sustainability Officer is working with the Permanent Secretaries of those departments to ensure the fullest possible levels of reporting for future years.

15. The inclusion of sustainability goals in the personal objectives of permanent secretaries was an important gesture. But it seems to have remained no more than a gesture. There is little evidence to suggest that this has had any effect on departments' efforts to achieve sustainability. We intend to examine the performance of permanent secretaries who do not meet their targets in 2008-09, and invite them to explain their performance to us. (Paragraph 49) The Government notes and welcomes the proposal of the EAC to examine the performance of Permanent Secretaries who do not meet their targets in 2008-09.
The Government believes that the changes announced in its response to the April 2008 SDiG report from the SDC are bearing fruit. The inclusion of sustainability goals in Permanent Secretary objectives has strengthened commitment to the sustainability agenda at the top leadership level in Government: Permanent Secretaries now personally review and sign off departmental performance data on sustainability issues and departmental forward trajectories. Data accuracy has improved significantly, and sustainability is increasingly being mainstreamed in the work of departmental Estates Champions and Commercial Directors.
We note that the December 2009 Delivery Plan Update will include the latest performance data (for 2008-09), refreshed departmental delivery trajectories, and analysis of top initiatives for achieving the 2010-11 targets. The Chief Sustainability Officer in OGC will be using this information for further discussions with Permanent Secretaries and heads of estates and procurement, and this should also be of use to the Committee in its proposed discussions with Permanent Secretaries and other Government representatives.

16. A meaningful commitment to the sustainability of Government operations must come from the highest level. If the question of sustainable operations is to carry real weight within Government, it is vital that the Minister responsible shows active leadership. We expect to see solid evidence of the Minister's commitment to this agenda when we next inquire into this subject. We recommend that the Minister responsible for this agenda should take a more active role in the oversight of performance management by the Sustainable Procurement and Operations Board. (Paragraph 51) The Government agrees with this recommendation. The Economic Secretary to the Treasury (EST) is actively managing the performance of the Chief Sustainability Officer and of the CESP, will work with Ministerial colleagues in other Government departments to help improve Government performance, and will work with Defra Ministers on the development of new and ambitious targets to take us beyond 2010-11.

17. It is at ministerial level that the link between policy and operations is forged. We urge sustainable development ministers to work more closely together to ensure that there is a coherent and co-ordinated approach to sustainable development across Government. The Government must lead by example by putting sustainable development at the heart of a consistent and effective approach to both policy and operations. (Paragraph 54) Government is committed to delivering Sustainable Development (SD) at all levels of Government and this requires all departments to work together. Defra continues to lead for Government on sustainable development and the SOGE framework, and is working closely with DECC, as policy lead on carbon emissions reductions, to ensure that the framework works as an effective delivery mechanism for carbon budgets for operations and estates.
But sustainable development can only be delivered through the efforts of all departments across Government. Each Government Department is required to set out its high level contributions to delivering the UK Government Sustainable Development Strategy, Securing the Future, in their Sustainable Development Action Plans. This includes setting out how sustainable development is being delivered via their policy, people, procurement and operations. These commitments are supported by the role of dedicated sustainable development ministers in each Government department who are responsible for all aspects of sustainability, including policy and operations.
The links at official level are also strong. The SD Programme reports on performance to the cross-government SD Programme Board, which consists of senior SD leads across Government including colleagues in the Devolved Administrations, from the Sustainable Development Commission and from the OGC. The SD Programme Board oversees this work and is responsible for ensuring that departments have the capacity to deliver their commitments arising from the UK sustainable development strategy. The Board's work is supported by the SD Programme Working Group which Defra chairs, and whose purpose is to build capacity and support delivery of sustainable development outcomes across Government.

18. If the Government is committed to sustainable development, it must set itself tough and stretching targets that match the high level of ambition of its own policies on sustainable development and climate change. Evidence of performance against these targets must be provided in the form of robust, verified data. But setting targets is not enough: the Government must take radical action to ensure that all Government operations are making real progress towards sustainability. It must develop a more coherent investment strategy, based on an analysis of present and future costs, in order to enable it to spend to save. (Paragraph 55) The Government agrees with this recommendation. This response has emphasised Government's commitment to setting, and achieving, stretching targets that set the right level of ambition for the UK on the environmental agenda. These targets will be announced in December 2009. In addition, Government has set itself other stretching commitments on carbon in its Low Carbon Industrial Strategy.
The Government has also announced, in the recent DECC White Paper on Energy and Climate Change, a new high level review of energy efficiency across the entirety of the public sector. This will examine the present and future costs of potential investments in energy efficiency and will inform future resource allocation in Government.

19. To achieve this, the Minister responsible must show strong leadership and take an active role in performance management. There must be clear lines of accountability so that underperformance can be managed effectively. It must be clear who should be held to account if performance in the 2008-09 reporting year is poor. But we also need to know that that person has had not just responsibility for sustainable operations, but also the means to make real changes happen. (Paragraph 56) The Government agrees with this recommendation.
Sustainability remains one of the Cabinet Secretary's four corporate priorities for the civil service and sustainability goals are now embedded in the performance objectives of all Permanent Secretaries. The post of Chief Sustainability Officer (CSO), supported by the CESP (both in the OGC) is responsible for working with departments to ensure that the Government's targets on sustainability are met.
The Economic Secretary to the Treasury (EST) is actively managing the performance of the CSO and the CESP, and will be working with Ministerial colleagues across Whitehall to help improve departmental performance.
The CSO has two important levers at his disposal to ensure the delivery of the Government's sustainability goals, namely his leadership of the Government's work to implement value for money in the Government's central civil estate (High Performing Property) and to achieve the Operational Efficiency Programme targets for value for money in collaborative procurement.
The most important lever for effective management of performance, however, is not yet in place. This is the timely performance data that allows performance to be actively managed. It has been a priority of the CSO and CESP to put a quarterly reporting regime in place. Progress towards achieving this goal was set out in the July Delivery Plan Update.