Written evidence submitted by Peter Jones
OBE
1. SYNOPSIS
Funding Sources to supplement State injections.
The role of Inheritance tax breaks.
Competing with existing dealflows in a global context.
Target investment projects - Low hanging fruit and
Aggregation.
Planning and land issues - waste sector exemplars.
The criticality of carbon evaluation and measurement.
Links to the Electricity Market Reform.
Extant models - the London case.
2. THE RESPONDENT
2.1 My environmental background is that of a
main Board Director with one of the top three UK Waste management
companies in the UK for 20 years. Since the sale of that Plc in
2008 and my retirement I have been contacted to assist in the
acceleration of the low carbon Agenda with specific reference
to the 60 plus million tonnes of "scrap" carbon based
material which flows from domestic and business sources into recycling,
energy and landfill each year. This work is undertaken for…
A major European Bank which has created a £300
million Pension Fund investment vehicle targeted at delivering
low carbon solutions for co-located waste conversion processes.
The same Bank which is interested in the use of its
Property portfolio of industrial sites to lease to waste, energy
and technology companies for the materials diverted from landfill.
A "virtual" Committee under the supervision
of the WRAP (Waste and Resources Action Programme) examining the
blockages faces the application of large scale anaerobic digestion
gas to grid.
The London Waste and Recycling Board as the Mayor's
advisor.
Technology companies operating in the fields of plasma
gasification, hydrogen fuel cell storage, anaerobic digestion,
carbon dioxide sequestration from waste incinerator thermal oxidation
and waste logistics.
A now superceded Regional body which has produced
a Planning location analysis tool for evaluating infrastructure
projects in waste and renewable energy under my Chairmanship.
As a recent Pensioner I have acquired a working knowledge
of pension tax structures.
I am a Board member of our Village not for profit
Community Interest Company which is seeking to fund a small scale
anaerobic digestion gas plant and low cost community housing to
the tune of £3 million.
2.2 All these entities share a common interest
in the realisation of very real projects associated with the diversion
of organic material from landfill to soils, gas, electricity,
combined heat and power,synthetic transport fuels or hydrogen.
These amount to over 60 million tonnes (compared to the 60 million
tonnes of coal and 70 million tonnes of fossil gas) burned in
the economy each year. Peer reviewed studies suggest that waste
can divert around 6% of the electrical load and a similar amount
of heat from fossil sources at a cost of between £10 and
£15 billion investment.
3. FUNDING SOURCES
AND TAX
BREAKS
3.1 Whilst the Treasury does not accept hypothecation
the sourcing of the base capital of the GIB should be linked to
the flow of funds triggered by the recent changes in the regime
for Carbon Reduction Certificates to that of a de facto
tax and the yields from the Landfill Tax net of the refunds via
the credit scheme.
On an annualised basis these are currently estimated
at a combined £2.5 billion and would thus support a total
Bank capital base of the order of £40 billion every year.
It has to be conceded that landfill input tonnages are now highly
elastic however.
3.2 A point which seems to have been ignored
on which I commented over two years ago relates to Pension Funds.
The latter urge, rightly perhaps, the facilitation of a bond type
programme backed by State guarantees, mutuality structures, the
advantages of leveraging in a Bank rather than a Treasury State
borrowing model and the importance or relevance of Utility type
return structures to guard against future legislative changes
(aka the Spanish example).
3.2 My submission is that the attractiveness
of the whole vehicle could more simply be tackled via inheritance
tax changes with the decision left firmly in the hands of individual
investors with their IFAs. Pension Fund Trustees of companies
may be differently incentivised but they appear to control around
£800 billion (within the NAPF) compared to the estimated
£2 trillion or more in all pension funds.
3.3 Upon retirement I was presented with a choice
of leaving funds in a corporate scheme or resigning that and creating
a SIPP. The former option would result in all funds reverting
to the scheme on the death of myself and my spouse. In the event
of that happening with a SIPP the previous Government would have
imposed a one off tax of 82%. The current Coalition have reduced
that to 55% tax.
3.4 My point is that if the death tax on SIPPs
( or the proportion of them invested in qualifying Green investments
as equity, project loans, bonds or securitised debt) is reduced
further to levels of the order of 25% the necessary investment
levels of at least £600 billion to convert to a low carbon
economy would rapidly materialise from decisions by individual
investors. This is a reasonable assumption because a £1 million
pension SIPP invested to a Treasury defined maximum in UK Green
Bonds of, say 50%, would permit an additional £125,000 to
remain in the Estate when the SIPP crystallises on the death of
the last remaining spouse( at a 25% rate).
Initiating such changes in 2012 will create an immediate
flow of investment of £500,000 as a portfolio in approved
schemes spread across water, transport, energy and waste but the
tax impact will not be experienced until 2030 or more in the case
of a 60 year old at current mortality predictions. In this way
an ageing population in well funded SIPPS becomes a benefit to
the UK rather than overseas funds where a devaluing Sterling may
accelerate reduced returns.
3.5 As the desired funding gap is filled the
Treasury can simply amend the qualifying rules for later SIPPs.
The annualised income impacts for the Treasury are not as significant
as might be imagined because the tax yield ( 55% 0n over £2
trillion of SIPPS) will be staggered over many decades as holders
AND THEIR SPOUSES die. They can regulate their exposure as the
gap fill at each Budget Review. I have no data but if my portfolio
is typical of the whole UK the bulk of SIPPS are invested in overseas
schemes anyway so historic earnings are not being currently utilised
to the benefit of the UK.
The role of the Bank would be to regulate qualifying
schemes ( on the Landfill Tax Entrust model perhaps) and issue
Bonds, possibly as a one stop shop provider.
4. LOW HANGING
FRUIT AND
AGGREGATION
4.1 In the UK waste sector there are considerable
opportunities for co-located resource recovery Parks alongside
large single point energy users such as airports, docks, industrial
estates, data processing centres, food chain processing centres,
prisons, hospitals and so forth. There is no single entity capable
of accepting the common risks of…
Feedstock Guarantees
Sites
Funding
Technology
End output markets
Thus there is considerable appetite for the estimated
£15 billion needed for around 1,000 new low carbon transition
sites based on utilising the WRAP Planning tool and increasingly
proven low carbon advanced waste technologies.
These are targeted at two to 10 Mw load nodes. At
the other extreme my experience with our village CIC confirms
a market for large numbers of village based renewable energy projects
which are probably best managed by aggregation within Branded
portfolio products for Pension fund investment.
5. PLANNING AND
LAND
5.1 The Advantage West Midlands/ WRAP Planning
Tool is a software based programme which evaluates prospect sites
on the basis of socio-political impacts, biodiversity, communications
links, the site characteristics and the veracity of the exit product
markets. This enables a transparent, quantitative based site assessment
to be undertaken in conjunction with local residents.
5.2 Information on the tool has been circulated
to Commercial Land Agents such as Savills, BNP Paribas, Quintain,
St. Modwen and Fisher German so that they can consider the application
of it to sites in their commercial portfolio. The Tool is short-listed
for an RITP Award.
6. CARBON EVALUATION
AND THE
ELECTRICITY MARKET
REFORM
6.1 It is essential that in order to apply a
coherent set of parameters for fossil carbon dioxide displacement
the GIB has access to coherent, academically peer reviewed standards
for "footprinting" candidate schemes as part of the
qualifying process. Given the diversity of that displacement in
terms of watts, therms, gigajoules, tonnes of recyclate of litres
of transport fuel the Bank needs to participate on the basis of
common standards which measure benefits by a single measure. The
absence of such coherence will lead to inconsistencies in the
regimes of internalised externality costs in the form of Obligation
Certificates, feed in tariffs, tradeable packaging permits and
offsets in gas, electricity, transport and materials markets These
will in turn impact the overall integrated commercial rate of
return and dividend flow to bond, equity or loan holders.
7. THE LONDON
MODEL
7.1 This response is in a personal capacity but
I commend to the Committee the template of the two year old London
Waste and Recycling Board, of which I am a Member. Whilst funding
is derived notionally from the allocation of Landfill Tax Credits
this has been leveraged to a point where around £60 million
has enabled over seven times that level in terms of initiated
schemes by ensuring that LWARB funds have first accessed EU match
funds and secondly provided the de-risking of early mover projects
by sacrificing guaranteed returns on high risk loans or equity
to "top out" base funding provided from commercial lenders
in the form of equity, bonds, secured and unsecured loans.
7.2 In closing I commend to the Committee the
need for extreme urgency. The push for these measures in terms
of supply side pressures from rising concentrations of carbon
dioxide are well evidenced, practically as well as scientifically.
However the demand side opportunities in terms of National competitive
advantage, job creation, export potential and other practical
market factors offer a rare opportunity for substantial financial,
technical and commercial growth in the UK at a time when the doors
are closing on consumer focussed production industries.
18 January 2011
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