Budget 2011 and Environmental Taxes

Written evidence submitted by The Environmental Industries Commission

Budgetary Kick-start for a Green Economy

The Environmental Industries Commission

The Environmental Industries Commission (EIC) EIC was launched in 1995 to give the UK’s environmental technology and services industry a strong and effective voice with Government.

With over 230 Member companies EIC has grown to be the largest trade association in Europe for the environmental technology and services (ETS) industry. It enjoys the support of leading politicians from all three major parties, as well as industrialists, trade union leaders, environmentalists and academics.

The EIC and its members work to provide solutions to meet environmental standards set by government legislation. We work with government to strengthen the UKs policy framework. This work ensures that the Government’s intentions to put the economic benefits of environmental protection at the heart of its plans for growth. This framework ensures that the governments environmental targets are realised and the UK have cleaner air, water and land.

We the Environmental Industries Commission (EIC) and its 230 members companies are delighted to have the opportunity to submit our proposals for 2011 Budget to the Chancellor of the Exchequer.

We have followed the government’s progress on being the ‘greenest government ever’ we would like to congratulate on some good initiatives. We will be watching out for more.

The EIC believe that the UK needs a new approach and new thinking to create sustainable jobs and low carbon resource efficiency which will save the economy money and protect our environment.

Today we have an opportunity to shape a new economy that is driven by industrial processes which are low carbon and resource efficient, and protect our environment. The fundamental logic of this ‘new economy’ must be for ecological sustainability – an argument endorsed only this month by the UN report ‘Towards a Green Economy’.

To do this the government must rectify the major market failure of unpriced environmental costs and bewefits – thereby reconciling the free market economy with the environment. We need above all a strong and robust economic-environmental policy framework that rectifies this market failure by putting a cost on pollution, thereby encouraging finance and investment in low carbon resource efficient industrial operations and supply chains.

Our Pre-Budget report highlights a few areas where we think the Chancellor must focus if we are to build a ‘green economy and create jobs’. We and our members look forward to working with the government and to support them in their efforts.


The Government must put green jobs creation at the heart of the 2011 budget if it is to establish an international leadership role for UK business in the global economy of the future.

The Budget is the first opportunity for the Coalition Government to lay the foundation for a fundamental shift in our economic model so that future economic wellbeing and competitiveness is based on protecting the environment, not destroying it. This is not only the defining challenge of the coming decade, but the defining business opportunity.

The global environmental market place is currently worth £3.2 trillion and is growing at over 5% a year. The UK’s environmental industry is currently valued at £112 billion and employs just fewer than one million people. Its continued success will be engine of growth on which the future of the UK economy depends.

The Environmental Industries Commission’s 2011 Budget proposals set out a series of recommendations for how the 2011 Budget can exploit this huge business opportunity and help establish a world-leading environmental technology and services industry in the UK – with thousands of new businesses, hundreds of thousands of new jobs and huge export potential – at a low cost to the Treasury.

In 2009, George Osborne highlighted the need to "bring to an end the stale argument that we have to choose between economic growth and the environment." Indeed, he went on to argue that "the Treasury should put a fair and predictable price on environmental externalities… An externality is an impact that is not fully reflected in the economic costs or benefits of a transaction or process. A classic example of a negative externality is a polluting factory that does not have to bear the full cost of the damage it's causing to the environment… The role for the Treasury is to ensure that these externalities, whether good or bad, are properly priced into the cost of doing things."

This was a welcome commitment. These words were said in opposition, but we would very much hope that we now see evidence of this thinking in Government. Rhetoric must be replaced by action both in the forthcoming budget and wider HM Treasury policy.

A vital first step will be taking action to correct the huge market failure that continues to allow the exploitation of our environment. When we emit greenhouse gases, or our vehicles emit harmful air pollutants, or our factories discharge harmful pollutants to our rivers and seas, the market does not bear the true cost of the damage caused. The only way to correct a market failure is to adopt policies that ensure environmental damage is translated into immediate price signals. Putting a fair and predictable price on environmental damage means developing market mechanisms that price in the true environmental costs of doing business.

The UK needs to set a price on pollution

In the past the UK has missed countless opportunities to put an effective price on pollution through the tax regime and, therefore, done little to encourage investment in environmentally sustainable behaviour. By reforming fiscal measures to put a price on pollution and better reward environmentally sustainable behaviour, at the same as facilitating innovate funding mechanisms such as Tax Increment Financing, the Government could provide much needed support to the UK’s high growth environmental industries. This will help drive investment in new green businesses, help create new jobs and put the UK at the forefront of a £3 trillion global market place for environmental goods and services.

David Cameron recently highlighted that "if government put a realistic cost on pollution and waste, it…would force whole industries to change in order to survive… That's why a future Conservative Government will put a real price on pollution and waste in our economy - and one that is here to stay."

The 2011 Budget is the Government’s first opportunity to embrace low carbon and sustainable growth and put an appropriate price on pollution. By doing this the Government can harness the power of markets to find effective, efficient and equitable responses to the environmental challenges we face.

EIC believe that the 2011 Budget must support the UK’s environmental industry through targeted fiscal incentives for green technologies; innovate funding mechanisms such as Tax Increment Financing; and mobilising private sector investment through a Green Investment Bank.

These fiscal support measures should be supported with the launch of an Environmental Industrial Strategy setting out how Government Departments can help establish a world leading environmental industry in the UK.

Of over-riding importance, if the Government is to provide the confidence it acknowledges businesses need to invest in environmentally friendly goods and services, is the urgent need to put in place a long-term, ambitious environmental policy framework right across the economy. Without this, business will not have the confidence to invest in the technological solutions to the range of environmental problems we face, leaving our international competitors to seize huge new environmental markets.

David Cameron has acknowledged that environmentally friendly goods and services "take time and money to research, develop and invest in. And businesses will only put in that time and money if they are confident that there will always be a place for these products in the market."

The 2011 Budget is the Government’s first opportunity to show that it is serious about leading a "green technology revolution, creating jobs and new businesses across the country."

Unless urgent action is taken to secure these environmental and sustainability investment opportunities for British business, countries such as Germany, the USA, Japan and Korea – whose governments are continuing to put in place ambitious support measures for their environmental industries – will steal the march on the UK. This would be disastrous for our international competitiveness.

1. A Green Investment Bank.

EIC welcomes the Government’s commitment to create a Green Investment Bank. It is crucial

that the Bank is given a broad remit to invest in the whole of the UK’s environmental industry.

If the Bank’s mandate is limited to the low carbon sector the UK will risk forfeiting the huge investment opportunities that exist across the whole of the environmental sector – notably in the traditional environmental technology and services industry

The GIB is about building confidence for the markets so they unlock finance and invest in environmental technologies. The GIB must be the finance mechanism that supports industry exploiting the positive synergies between environmental protection and economic growth.

We therefore believe that the GIB should not be a fund but a fully operational commercial bank that can raise money (eg through "Green ISAs".

EIC has established a Green Investors Strategic Policy Group of leading private sector investors to look at how the Government can boost private sector investment in environmental solutions. It will explore ideas such as an Environmental Investment Tax Credit (similar to the Community Investment Tax Credit available to individuals and corporate bodies investing in accredited community development finance institutions which then in turn provide finance to qualifying profit-distributing enterprises, social enterprises or community projects).

2. Environmental Tax Incentive Financing

EIC believe that the 2011 Budget should launch a new Environmental Tax Increment Financing

model to finance local environmental infrastructure, including:

i) Low and zero carbon public buildings

a. Energy efficiency retrofitting of low-income family homes

b. The construction of low carbon social and affordable homes (on brownfield land)

c. Energy efficiency retrofitting of public buildings, such as schools and hospitals

ii) The redevelopment of Brownfield land

iii) The construction of new waste infrastructure

iv) The implementation of Sustainable Urban Drainage systems

3. Targeted Incentives for Energy Efficiency, Land Remediation, Waste Management, Transport Pollution Control and Water Management

EIC believe that the 2010 Budget is valuable opportunity for the UK to show leadership in stimulating the economy through support for the high-growth environmental technologies and services sector.

Below we have set out a series of targeted fiscal and monetary incentives that EIC believe would facilitate investment in green technologies. EIC believe that these measures should be primarily financed by applying the "polluter pays principle."

A. Incentivising Energy Efficiency

Ambitious carbon and energy management policy that drives vast improvements in energy efficiency –and therefore makes a full contribution to meeting the UK’s climate change targets – will help position the UK as a global leader in provision of energy efficiency technologies and services. Establishing this technology and skills base in the UK will help create new business and, potentially, thousands of new jobs.

If the UK is successful in establishing a domestic market for energy efficient solutions, we will start to see other Governments around the world adopt similar measures. And as they do, UK business will be ready to respond to the increasing demand for their skills and technologies - creating new business opportunities for the UK across the world.

Whilst EIC welcomes the Government’s commitment to energy efficiency we still need far greater ambition from Government if we are to fulfil the full potential for energy efficiency improvements right across the economy.

EIC believe that the 2011 Budget should incentivise energy efficiency improvements across the economy by:

i) Increasing the ambition of the Carbon Reduction Commitment by:

a. Reducing the coverage threshold from 6,000 MwH to 3,000 MwH

b. Ensuring a higher price for allowances .

ii) Improving the Enhanced Capital Allowances scheme by:

a. Introducing an ‘open competition’ for new technologies to be added to the energy

technology list;

b. Increasing the values of ECAs to 150 per cent for the most innovative technologies

B. Supporting Land Remediation and Brownfield Development

In 2007 there were an estimated 62,130 hectares of previously developed land in England alone. Local planning authorities have estimated that 26,510 hectares (43 per cent) of this is potentially suitable for housing and could provide around 1,051,000 dwellings. Given the UK’s ambitious house building targets, EIC believe that it is vital that development of these sites continues to be viable and that we retain the skills to deal with the challenges they bring.

The UK’s contaminated land sector is worth £1 billion a year and employs almost 8,000 people. The sector is expected to grow by almost 3.5 per cent per year between now and 2015, with the number of jobs expected to increase to 10,000 over the same period.

EIC calls on the 2010 Budget to support the redevelopment of brownfield sites by:

i) Urgently improving the Land Remediation Relief by:

a) Allowing developers to claim in year of spend;

b) Extending the Land Remediation Relief;

c) Change the definition of long term derelict;

d) Allow the Landfill Tax Exemption for asbestos; and

e) Allow the transfer of the Landfill Tax Exemption.

ii) Using Tax Increment Financing to help local authorities to develop brownfield land.

C. Using Waste as a Resource

As a society, we current consume natural resources at an unsustainable rate. Reducing waste can make an important contribution to achieving sustainability. Waste can be reduced by using fewer natural resources, and by re-using products and recycling the materials in them.

The waste hierarchy sets out an order of preference for waste management policy – reduction, reuse, recovery, and disposal. Where waste minimisation has reduced the waste stream to the extent practical, and recovered materials are reused or recycled, EIC believe that it is preferable to recover energy from residual waste rather than dispose of it.

Disposal to landfill should only be necessary for small amounts of residual material. EIC therefore welcomes the decision to extend the landfill tax escalator to 2014 (and to introduce a "floor" price of £80 per tonne)

EIC believe that the Government should ensure that Defra’s new review of waste policies adopt a policy and regulatory framework across the waste hierarchy that facilitates a rapid move away from a linear process of resource extraction, manufacture, consumption and disposal towards a "closed loop" economy where resources remain in use.

EIC believe that sustainable waste management should be supported in the 2011 Budget by:

i) Maintaining an landfill tax escalator in excess of £80 per tonne beyond 2014 (at a minimum through inflation-linking of the landfill tax "floor" price);

ii) The use of Tax Increment Financing to allow local authorities to invest in new waste infrastructure;

iii) Minimising virgin material use through the introduction of new fiscal incentives such as reduced VAT for the use of reused materials and a Virgin Materials Levy;

D. Improving Public Health by Incentivising Transport Pollution Control

Poor air quality is estimated to reduce the life expectancy of every person in the UK by an average of 7-8 months - impacting particularly on children, the elderly and those in poor health. According to recent estimates, poor quality results in more than 32,000 premature deaths in the UK each year. Road transport is one of the most significant contributors to poor air quality. This problem is significantly worse in hotspot problem areas, such as cities.

EIC believe that one of the most effective ways to meet the UK’s air quality obligations is through targeted programmes focused on cleaning up the most polluting vehicles. These areas will continue to suffer from poor air quality unless measures are implemented at a local level.

EIC calls on the 2011 Budget to incentivise the uptake of transport pollution control measures by:

i) Announcing a National Framework for Low Emission Zones supported by funding for

retrofit of PM and/or NOx abatement technologies

ii) Introducing an equivalent "Enhanced Capital Allowance" for retrofit technologies

iii) Incentivise the early uptake of Euro VI vehicles through the continued use of the Reduced Pollution Certification (RPC) scheme

E. Making Water Regulation Work Better for Consumers and Industry

EIC’s Members have consistently argued that Ofwat’s current regime for the Periodic Review creates a "boom and bust" financial climate for the supply chain serving the water industry in the UK as capital expenditure tends to be concentrated towards the end of the five year period. This situation leads to financial and managerial inefficiencies and instabilities in the supply chain (leading to sizeable job losses) and ultimately leads to higher costs for consumers.

EIC welcomes the current reviews into Ofwat (by both Defra and Ofwat) but is concerned that insufficient attention is being paid to the problems suffered by that EIC Members and the water technology and services sub-sector.

EIC calls on the 2011 Budget to announce:

i) An immediate study into job losses suffered by the water technology and services sub-sector in the last two years of the last five-yearly AMP cycle;

ii) Changes to Ofwat’s Periodic Review process to avoid damaging the competitiveness of the UK’s water technology and services sub-sector caused by the existing "boom and bust cycle";

iii) The use of Tax Increment Financing to allow local authorities to invest in Sustainable Urban

Drainage Systems.

4. An Environmental Industrial Strategy

EIC believes that there is a need for strategic thinking by ALL government departments with the aim of promoting and assisting the whole of the environmental industry (covering the traditional environmental technology and services sector as well as renewables and low-carbon).

An overall strategic approach to green jobs and skills must address I ssues related to water, air quality, land contamination and soil quality, and the efficient use of resources.

EIC calls on the 2011 Budget Report to: announce an Environmental Industrial Strategy supported by:

i) A fully resourced Sponsoring Unit for the UK’s environmental industry.

ii) An "Environmental Industry Forum" (across government departments) to coordinate the range of policies on:

· Environmental Industry Support

· Environmental Regulation

· Technology Diffusion

· Innovation

· Investment

· Skills training

· Export support.

20 April 2011