Budget 2011 and Environmental Taxes

Written evidence submitted by Paul Appleby CEng FCIBSE FRSA – Consultant in Sustainable Design

Executive Summary

This memorandum deals primarily with the impact of the Budget 2011 and ‘The Plan for Growth’ on sustainable development and in particular CO2 emissions. These are addressed in the context of other Government actions, such as the Fast Track review of Feed-in Tariff, since these have a cumulative effect which will have a major impact on the ability of Government to meet its legal obligations under the Climate Change Act. Specifically the memorandum addresses:

· The change in definition of zero carbon homes and its impact on the manufacturers and developers who have been gearing up for 2016

· The relationship between the cost of zero carbon and the Feed-in Tariff, Renewable Heat Incentive, Green Deal and Community Energy Fund.

· The implications of proposed policy for decarbonisation of the grid and relationship with the 2050 Pathways Analysis.

· The implications for zero carbon non-residential buildings from 2019.

· The implications of the proposed changes to Feed-in Tariff for photovoltaic installations larger than 50kW.

· The relationship between Feed-in Tariff (FIT) and Renewable Heat Incentive and their application to low and zero carbon fuelled combined heat and power plant and the proposed changes of FIT for anaerobic digestion.

I conclude that, where applicable, Government policy and actions should be assessed for the impact they will have on achieving the legally binding CO2 reduction of 26% by 2020 and 80% of GHG by 2050 compared by 1990 baseline values

1.0 Introduction

1.1 As a freelance consultant I specialise in the sustainable design of buildings and providing advice to design and masterplanning teams on all aspects of sustainability. I graduated with a first class honours degree in Environmental Engineering in 1975 since when I have worked as a mechanical services design engineer, a lecturer and researcher, setting up my own consultancy in 1988. This became Building Health Consultants Ltd, which remains today as part of URS Scott Wilson. In 2000 I establish the Building Sustainability Unit at URS, from which I retired at the end of 2008.

1.2 I have some 60 publications to my name including Integrated Sustainable Design of Buildings which was published in January of this year by Earthscan. It is a comprehensive guide to sustainable design, masterplanning and construction, designed for a global marketplace, but with a particular focus on the UK.

2.0 Potential Impact of Budget 2011

2.1 I will leave commentary on fuel duty and transportation impacts to others more qualified in these areas. In this memorandum I will focus on those aspects of the Budget 2011, ‘The Plan for Growth’ and other Coalition actions that impact on climate change and sustainable development.

2.2 It is my view that every Government policy and action should be tested against predictable and measurable criteria, such as the requirements for carbon reduction set out in the 2008 Climate Change Act, as well as the trends illustrated in Defra’s Sustainable Development Indicators (updated July 2010).

2.3 The measures set out in the Budget 2011 also have to viewed in the context of a number of recent reports from Government departments, namely:

· Carbon Plan. March 2011

· Final Zero Carbon Hub Report. Feb 2011

· 2050 Pathways Analysis, DECC. July 2010

· National Infrastructure Plan. HMT/Infrastructure UK. October 2010.

· Fast Track Review of the Feed-in Tariff, DECC. Consultation responses due May 2011.

· Low Carbon Construction Innovation and Growth Team’s final report. November 2010.

2.4 Zero carbon homes: Despite pledges in the Carbon Plan and recommendations in the final report from the Zero Carbon Hub the Budget has removed the commitment to zero carbon homes being a requirement of Building Regulations from 2016. The requirement has been watered down to cover only those parts of the energy demand that depend on the design of the dwelling, and exclude the so-called 'unregulated emissions', such as white goods, TVs etc, which are likely to make up some 33-50% of carbon emissions.

2.5 It is understood that the Government is worried that the cost of achieving zero carbon will make homes unaffordable and hence inhibit growth. Unfortunately this is likely to result in a vicious circle since the consequent demand for the materials and products required for improving carbon performance will be insufficient to bring the costs down to affordable levels, hence increasing the cost of low carbon homes. It also means that many of the manufacturers, suppliers, installers and developers who have been gearing up for zero carbon will be left high and dry. Some of these will also be hit by the Government’s proposed Fast Track review of FIT (see below), thus depressing the market for solar photovoltaics along two fronts.

2.6 One side effect of the redefinition of zero carbon is that developers are less likely to be required to contribute to off-site community energy schemes, unless these are leveraged by Local Authorities through the Community Infrastructure Levy.

2.7 The Zero Carbon Hub report refers to illustrative marginal costs for achieving zero carbon as £8,700 for semi-detached houses and £12,300 for detached, compared with 2010 Part L1A compliance. These include an allowance of £75 per tonne CO2 for off-site ‘Allowable Solutions’ and are based on a Carbon Compliance limit of 11 kg CO2eq/m2/year for the semi and 10 CO2eq/m2/year for the detached house. The costs are based on projected prices in 2016.

2.8 There are a number of factors that this analysis appears to ignore:

2.8.1 Although I have not been able to access the detailed cost analysis carried out by Cyril Sweett, no mention is made in the Carbon Hub report of allowance for Feed-in Tariff, Renewable Heat Incentive and Community Energy Fund in the marginal costs. In essence these will act as a subsidy for the PVs and other renewables, and potentially for Allowable Solutions.

2.8.2 The Government has proposed that the Green Deal should apply to new-build dwellings and would reduce the up-front cost of carbon reduction measures, such as insulation, although in fact this will simply spread the cost over a specified period through energy bills (pay-as-you-save).

2.8.3 Both the 2050 Pathways analysis and the EU Roadmap 2050 study require a decarbonisation of the electricity grid in order to achieve the 80% greenhouse gas reduction by 2050. As the grid is decarbonised through some combination of renewable energy, carbon capture and storage and (possibly) new nuclear, carbon emissions associated with the electrical demand from all dwellings will fall proportionately. Bearing in mind that dwellings built to the Zero Carbon Hub proposed Carbon Compliance limits will have negligible heating requirements electrical demand will dominate the energy requirements for future dwellings.

2.8.4 On the other hand the Pathways analysis assumes a massive reduction in demand from both new and existing buildings, such that the demand will not be any greater in 2050 than 2011. It has to be remembered that it is predicted that some 10 million new homes will be built between now and 2050, whilst perhaps 1 million will be decommissioned or demolished. Each new dwelling will represent an additional burden on the grid and add to the CO2 and greenhouse gas emissions to atmosphere.

2.9 Zero carbon non-residential buildings: For non-residential buildings the zero carbon requirement was scheduled for inclusion in revised Building Regulations by 2019, although the Zero Carbon Hub has not yet attempted a definition. There will be a problem in translating the exclusion of non-regulated emissions from the homes definition since all non-residential buildings must cater for the heat gains from all internal sources (regulated and unregulated) in determining either the loads dealt with by an air conditioning system or assessing summertime temperatures for natural ventilation feasibility.

3.0 Renewables funding

3.1 The 2010 Spending Review established a maximum fund for the Feed- in tariff (FIT). This has placed an artificial constraint on this vital incentive. The Committee will be aware that DECC has instigated a Fast Track Review of FIT with a view to reducing the amount paid for electricity generated from photovoltaics (PV) larger than 50 KW, with an especially large reduction for installations larger than 250kW (from 29.3p/kWh to 8.5p/kWh). It is my view that the impact assessment (IA) for this review should focus on the impact of this significant reduction on the ability of this Government in achieving the legally binding CO2 reduction of 26% by 2020 and 80% of GHG by 2050 compared by 1990 baseline values. It is interesting to note that the IA refers to total CO2 savings until 2020 of between 10.3 and 20.2 million tonnes for the ‘do nothing’ scenario and between 0.3 and 0.9 million tonnes for the fast track modifications. The difference between these scenarios approximates to the annual carbon emissions associated with one or two large coal-fired power stations. As the Government’s own Pathways Analysis shows there must be an ‘heroic’ effort in renewables development over the next 10 years, particularly when one considers the loss in confidence in nuclear power following the Fukushima disaster.

3.1 The Consultation document for the FIT review refers to 41 solar farms having obtained planning permission or being under consideration. These are very unlikely to go ahead with the revised Feed-in Tariff. Indeed it seems likely that very few installations larger than 50kW will go ahead. In my view this means that a massive opportunity will have been missed. Although the cost of PV cells has fallen by 30% since the original IA, the cost per kWh electricity generated from large-scale solar installations is still likely to be more than twice that for wind farms. It is my view that funding should be related to the cost per kWh of the technology concerned (ideally whole life cost, if data is available). Clearly the problem lies with the method being used to support renewable energy. I agree that the FIT should be able to meet the demand from the domestic market, with a particular emphasis on retrofit. However it must be made economically viable for developers to build large-scale solar farms. If there is inadequate funding within the FIT system, then alternative incentives must be identified; perhaps via energy company Renewable Obligations and/or the Green Investment Bank.

3.2 The IA also does not assess the impact on the UK manufacturers and installers of PV. Evidently with the focus on the domestic market the installers that serve this sector will benefit, however the cancellation of around 40 large-scale solar farm projects would strangle at birth a burgeoning large-scale solar industry.

3.3 The FIT Fast Track Review also responds to a poor uptake of the FIT for anaerobic digestion (AD). A small increase in tariff is proposed which I doubt will increase uptake. My view is that the rate should reflect the whole life cost per kWh of energy generated, taking into account diversion of waste from landfill and the economic benefits of digestate production. I would also like this category to be expanded to cover the use of used cooking oil and sewage waste for CHP plant.

3.4 The Government’s proposed Renewable Heat Incentive (RHI) will apply to renewable energy used directly for generation of heat. However it is unclear how this will be applied to applications that generate both heat and electricity. This includes any combined heat & power (CHP) application that uses a renewable fuel, such as the gas emanating from anaerobic digestion, sewage, landfill, gasification and pyrolysis, as well as biomass. There is a ‘bio-energy’ category in the RHI which refers to heat generated. If the energy from both electricity and heat are subject to separate payments through FIT and RHI respectively then the uptake of AD and other zero/low carbon fuelled CHP could increase markedly once the RHI is launched?

3.5 If crops are to be used for generating energy then I think it preferable that the conversion be through the AD process, which is far less polluting than combustion and more cost effective than gasification and pyrolysis. I think there should be an incentive for those installations that employ only waste products as a fuel, such as wood waste and agricultural by-products, perhaps through a differential in the FIT and RHI.

3.6 Studies have found that small-scale wind installations that are located where wind resources are inadequate, such as for individual houses in sheltered spots in towns and cities, consume more carbon dioxide in the manufacture of the wind turbines than is saved during the lifetime of the installation1. I would suggest that applicants for FIT for small scale wind turbines should be required to provide evidence that the wind resources in the planned location is sufficient to recover the carbon associated with manufacture of the proposed turbine within its lifetime. This could, of course, be applied to FIT and RHI applications for all technologies.

1 Phillips, R et al. 2007. Micro wind turbines in urban environments (BRE Report FB17) London: BRE

14 April 2011