Green Economy

CORRECTED TRANSCRIPT OF ORAL EVIDENCE    To be published as HC 1025-ii

House of commons

oral EVIDENCE

TAKEN BEFORE THE

Environmental Audit Committee

Green Economy 

Wednesday 14 September 2011

Andrew Raingold, Adrian Wilkes and Frank Price

Evidence heard in  Public Questions  16 - 49

USE OF THE TRANSCRIPT

1.

This is a corrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.

2.

The transcript is an approved formal record of these proceedings. It will be printed in due course.

Oral Evidence

Taken before the  Environmental Audit Committee

on  Wednesday 14 September 2011

Members present:

 Joan Walley (Chair)

 Peter Aldous

Zac Goldsmith

Mr Mark Spencer

Simon Wright

 ________________

 Examination of Witnesses

Witnesses:  Andrew Raingold, Executive Director, Aldersgate Group, Adrian Wilkes, Chairman, Environmental Industries Commission, and Frank Price, Director of Sustainability, Grontmij, gave evidence.

Q16 Chair: A very warm welcome to all three of you, and the Committee is grateful to you for taking the time to come in and have this session with us on the green economy. Thank you for the evidence you have each submitted: we feel this is an important agenda. If I may, I would just like to start off by perhaps giving each of you the opportunity to set out for us how you think a green economy could go beyond the concept of levying within environmental limits so that it improves wellbeing and addresses social equity issues as well. I would like to give you that opportunity to set your scene. Andrew, would you like to go first?

Andrew Raingold: Sure. If I may, I would like to start with the definition that is in the Enabling the Transition to a Green Economy document that was published by the Government not too long ago, and that is that the green economy will maximise value and growth across the whole economy while managing natural assets sustainably.

The Aldersgate Group welcomes certain aspects of this definition, particularly the emphasis on the whole economy, because a green economy is not just about a flourishing environmental goods and services sector. It is also about modernising traditional sectors and transforming conventional business models. But this definition should be improved. Firstly, it must incorporate social goals, because a green economy needs to be consistent with sustainable development and, in particular, with DEFRA’s definition for a sustainable economy, which focuses on prosperity and opportunities for all. Secondly, there is no emphasis on the jobs and employment aspects of a green economy despite a just and smooth reallocation of jobs being absolutely critical. Thirdly, there is no reference to putting natural capital at the heart of economic decision-making, so I think those would be my three priorities.

Q17 Chair: Thank you. What about the environmental technologies, Adrian?

Adrian Wilkes: For 16 years I have been running the Environmental Industries Commission to provide a voice with Government for the environmental technology and services industry, and our argument has always, funnily enough-I claim here modestly-been about the green economy. We have been saying there is a very strong market developing. When we first launched, the OECD figures talked of a global environmental market of about £250 billion. These are figures from a year or so ago, so definitions have changed, the renewable sector has dramatically expanded and is now £3 trillion. We are talking big economic opportunities for whoever grabs the lion’s share of that market.

Equally, we were arguing for pushing environmental standards, and this is where I think we come from. Our members are providing environmental solutions to the highest feasible level that are cost-effective and based on cost-benefit analysis.

If you push environmental standards, you are going to drive the rest of the economy to become more "eco-competitive". We are seeing dramatic restraints looming in terms of natural resources. I saw a figure from the WorldWatch Institute last week that by 2030 China is likely to be using as much oil as the rest of the world is using today, and obviously there is a lot of talk about peak oil. That is one example of resource constraints that are increasingly confronting the whole economy, and I am sure, Joan, you will recall in the mid-1990s Jonathon Porritt launching that Factor Four book and arguing that we could maintain our standard of living and output using just a quarter of the resources that we use.

Q18 Chair: Given the implications that would have for social wellbeing and social equity issues, do you see the green economy agenda embracing that?

Adrian Wilkes: I think it inevitably has to, although obviously from our perspective we are arguing a purely economic case. However, we certainly would not be saying that you have to ignore the consequences.

If you are looking at the opportunities, high environmental standards and green jobs have an impact on job creation, and hopefully on the higher value sorts of jobs. Do we want our work force, for example, to be simply low-wage people who are throwing waste fridges into a piece of high-tech German-manufactured technology that recycles the fridges and the CFCs, and so on? It impacts on jobs, and it obviously impacts directly in terms of energy efficiency issues on fuel poverty. Yes, there is a strong social side to it, although I am afraid that from our perspective it is about economics.

Frank Price: Language shifts and changes, and some years ago, probably fairly recently in fact, we would have been using the word "sustainable" rather than "green", or some time ago we would have used the word "environment" instead of "sustainable". I think the green economy for me is a sustainable economy, because I am a little bit old-fashioned in my language, and that word conjures up the social, environmental and economic legs going right back to 1992 and the Brundtland Report, so from all my experience, you cannot divorce those three legs, those three pillars, from what we are trying to achieve with the green economy debate and the green economy growth that we are looking for at the moment.

Thinking back to an earlier time in my career when I worked in Sheffield City Council, the belief that we held strongly there when we were trying to replace the steel industry lost jobs was that the best way of giving someone a better quality of life and improving their well-being was to give them a meaningful job that paid a decent wage and gave them some self-respect, and I do not mean that in any sort of parochial or patronising way.

If the green economy is going to deliver, and I sincerely hope that it will, and we are going to do all that we can to help that happen, we will have more jobs and social well-being will improve as a result.

Q19 Chair: Just pressing you a bit more on this, do you feel that the definition of whatever we call it, the green economy, includes this whole issue about social equity? You work a lot or have contact with small businesses, with SMEs. Are they looking at business models that would be about not just generating income but dealing with wider well-being issues? There was a report out today, which I heard on the news, in which the UK rated very poorly in terms of the well-being of children. Is that something that is included in the business models that you will be looking at, linked to this whole concept of the green economy?

Frank Price: From my point of my view, from my perspective, yes. I am not that familiar with the SME sector, but in the sector that is just above the SME sector, if you like, employing 1,000 to 2,000 members of staff, say, the emphasis very strongly there is on sustainable and economic growth for the business and making it a good place to work. If you make it a good place to work, the implication is that you have social and welfare policies in place to assist your staff both within work and also outside of work, with the social and well-being issues and problems that they might have. So that is very firmly within the business models of the sector, as I understand it.

Adrian Wilkes: I would make a broader point, and that is that what we are looking at here is environmental protection, environmental resources, and then you look at the problems of pollution. A few years ago, Friends of the Earth brought out a report looking at pollution hotspots in this country and-surprise, surprise-they were in low-income areas. That is an angle of environmental policy that very rarely gets examined and certainly is overlooked in Government impact assessments.

Andrew Raingold: I would just like to add that, in terms of business models, I think it is currently more common-particularly for our members but probably more widely-that business models focus on environmental outcomes, because that is where a much clearer business case can be made. But having said that, social outcomes really are at the core of a number of sustainability strategies. From our membership in particular, PepsiCo have put improved well-being right at the heart of their approach, so it is not just about significant green targets, such as zero carbon and zero waste and zero water by 2023, but it is also about renovating their core products, reducing saturated fats and also reducing salt levels. That includes a programme investing millions into research and development, and reshaping its portfolio with healthier products and new categories, such as healthy lunch products aimed at children.

I think there are other good examples out there. Marks & Spencer, which is another one of our members, has Plan A, which is saving £70 million a year in costs, and includes clothes exchange programme with Oxfam, which encourages its customers to bring old clothes into stores. While this is not a core business strategy, it is about a business engaging their customers in sustainability, and the outcomes have been very successful so that it has collected 3 million garments and raised £3.3 million for Oxfam, so it is addressing some of the barriers to the re-use of clothes.

Chair: That is helpful to know. We wanted to turn to skills to make sure that the subject did not drop off the agenda at the very end, so I am going to turn to Peter Aldous now.

Q20 Peter Aldous: The green economy will create new jobs that will require new skills. Do you think that the Government’s approach to ensuring that we have the right skills is sufficient, and if it is not, what should they be doing?

Frank Price: We had a debate about this yesterday. I sit on a panel that looks into one of the engineering journals from the Institution of Civil Engineers, and we were debating how the green economy is going to be skilled to meet the particular challenges that we will face. The one that we focused on was to do with buildings, building fabrics and the energy efficiency of buildings, and the techniques and technologies and skills that we will need to deliver our green agendas in 50 years’ time, particularly the carbon agenda by 2050, say.

Something like 60% or so of all buildings that will be in use then are already built, but they are performing, by and large, to the standards of 10, 20 or 30 years ago when they were constructed. The big challenge that we face in that respect is going to be the refurbishment of buildings, not new build. A lot of emphasis at the moment is on the BREEAM assessments, if you are familiar with those. There are BREEAM outstanding ratings for the whole of Canary Wharf, and those buildings down there are achieving fantastic energy efficiencies, but we are sitting in a building that is 200 years old. It will still be here in 50 years’ time and probably has a less efficient energy rating.

The skills and the technologies that we have for refurbishment are very much overlooked, and I see little or no Government attention paid to that. I would imagine, but I am only surmising, that you could apply that same logic to a whole range of technologies that are represented by the EIC and by the Aldersgate Group.

Adrian Wilkes: Andrew, a question for you because the Aldersgate Group have produced a report on this and probably have a lot more detail, but I would just make two comments. One is that generally-and I am probably going to repeat myself later during this session-we do not have joined-up Government, so there are parts of Government that are very focused on this agenda but the skills councils are not, and there needs to be more done on that.

However, you will hear me talk a lot about the need for Government intervention, because there is a market failure, but to what extent is it Government’s job to tell private enterprise to re-skill its work forces? Having said that, I would then add a very important point that the private sector invests in skills and in research and development if it has the right policy framework to create confidence about long-term demand for their technologies and solutions. Ultimately, in my opinion, it always comes down to having the right policy framework, and that will then drive the private sector to invest.

Andrew Raingold: In terms of the Aldersgate Group position, clearly the development of new skills is absolutely crucial for a green economy. The Aldersgate Group has made the case very strongly for the need for a specific green skills strategy. That was being developed by the last Government, and they issued a consultation in their final months that was not pursued by the new Government. What did come out of the consultation was the National Skills Strategy, which included a few measures that will help develop the green economy, with a particular emphasis on apprenticeships and the development of STEM skills. But what we really need is a very comprehensive strategy looking at three very different types of skills. There are the core skills of the green economy. These include the need for new technicians and engineers, where one in three environmental firms report skills gaps and these are particularly acute in specific sectors such as offshore wind.

These skills take a long time to develop and are expensive, and there is certainly a role for Government in facilitating this. But there is also building on existing skill sets, because most of the jobs in the green economy are not entirely new in content. They generally will just require some top-up training, so a good example is an electrician learning how to fit solar panels. This generally is not very expensive and can be done very flexibly.

But lastly, and of particular interest to the Aldersgate Group and our membership, is the development of generic skills, so these are the skills that will be required for all jobs and all professions, and include emphasising the leadership and communication skills that we require right from the top of a company at board level all the way down to customer-facing staff.

Q21 Zac Goldsmith: I wanted to press you on the strategy. I have not seen the details of the strategy that the last Government was developing, but if you were writing up the strategy now, if you were in government, specifically what would that strategy include? At what stage is it most appropriate for the Government to intervene? I think everyone would agree there is a need for a strategy of some sort, but the difficulty is knowing specifically what Government can do to fill those skill gaps.

Andrew Raingold: The first emphasis has to be on STEM skills and on education. We know there is going to be a huge ramp-up in offshore wind, for example, from 2015 onwards, and the planning for that has to be now because those skills do take a long time to come through. The skills strategy should focus on those core skills. The two other areas, particularly the last one in terms of generic skills, require a much more active role for business, so the Government needs to articulate perhaps what the green economy is and what skills it will require, but it is up to companies to then introduce training programmes to meet those skill demands.

Q22 Zac Goldsmith: How much of that do you imagine will come through Government-supported but industry-initiated apprenticeships? There are lots of new apprenticeship schemes being set up by BA and Thames Water and so on in my constituency, which are hugely successful, with 100% retention rates, and people are almost guaranteed a job at the end of it, but these are happening as a result of incentives that were created pre-election and post-election. It is a continuous programme. How much of it do you think comes down to intervention at that level and at that stage in the educational process?

Andrew Raingold: I think these types of apprenticeships are absolutely critical, especially focusing on training, because the majority of the work force for 2020 are already in work now. In terms of apprenticeships, one positive development has been the creation of 1,000 green deal apprenticeships, but the Government target for job creation by 2015 for home insulation is 100,000. You have to ask whether there is a gap there, but also how quickly will the Green Deal programme ramp up? The Government have to be careful about ensuring that their demand and supply side policies develop in tandem.

Q23 Chair: Can I just press you on the Government’s document, Enabling the Transition to a Green Economy, where they say what Government will do and what business could do? Under this heading, the Government document says that business could "help articulate skills demand through involvement in local enterprise partnerships and sector skills councils". Is that an agenda that you are actively working on, and do you have that relationship with Government on the shift to the green economy in that area specifically, including, for example, with companies like GE and Siemens who have come in on the back of offshore wind?

Andrew Raingold: That is important, so it really is up to businesses to articulate those skill needs.

Q24 Chair: Is business doing that?

Andrew Raingold: It is doing that, but there is a latent demand for skills, so because of policy uncertainty in a number of sectors, it is not very clear what that skills demand will be. The more certain the Government policy, the clearer the articulation of the skill needs will be.

Adrian Wilkes: May I just add a point about skill losses? We have been focusing on creating skills for the future. In the water sector-and I will ask Frank to come in because he has been working in that area-we have lost quite a lot of skills over the last five years in particular because of the problem of the "boom and bust" cycle created by Ofwat’s 5 year economic regulatory cycle.

Q25 Chair: What sort of skills have you lost?

Adrian Wilkes: Engineers. It is all to do with the boom and bust problem of the Ofwat AMP cycle.

Frank Price: What happens in the water utility sector is that the Water Committee is regulated in a five-year cycle by Ofwat. It is called the Asset Management Programme, and we are currently at AMP 5 at the moment. There is obviously a peak of investment. The current AMP cycle will invest something like £22 billion in water infrastructure. The cycle started about 18 months ago and it is just beginning to get going. It is still in the ramp-up phase, so some time next year it will reach peak spend for a year, 18 months or so, and then it will drop off as AMP 6 approaches. So we get this enormous rise in expenditure in the water utility sector, and the supply side from the consultancy design and construction side of the water industry will lose 40% of their jobs-40% of their staff are let go-as the AMP cycle winds down. A lot of those people do not come back into the water industry. They find jobs elsewhere or they go abroad. We see that very particularly within the water sector, so when AMP 6 starts, we have to start re-recruiting and retraining, and the cost to the industry is fantastic. I do not have a figure, but it is enormous.

Adrian Wilkes: And there is a problem of how it impacts on the international competitiveness of companies supplying water pollution control solutions.

Chair: That is a very useful analysis, thank you.

Q26 Peter Aldous: I think I will just sum up. In your opinion, do the Government’s existing policies for higher education, further education and apprenticeships provide the framework for requiring the skills or do we need something completely different? Is it just a question of putting additional capacity in the system? It is not just a question of the Government doing this, because the industry has to buy into it as well, so what can be done to encourage them to buy into it?

Andrew Raingold: What is clear is that a specific green skills strategy would help articulate firstly where the skills gaps are-at the moment it is not clear-and then what action is needed to address them. Some of the solutions are likely to be consistent with what is currently happening in terms of the national skills strategy, but probably include ramping up certain aspects with more emphasis on STEM skills and on the educational needs that we will need to deliver the green economy.

One interesting piece of research that was launched last year was from the ILO and Cedefop, and that urged European policy makers to ensure that their policies on the green economy were matched by their skills and training programmes, and it finds that in the majority of European countries, that is not the case. The leader in this area is France, which has a very ambitious mobilisation plan for green jobs.

Q27 Zac Goldsmith: In all of your submissions, you were calling for a new policy framework for developing or promoting the green economy. Even though the Government has issued its own report, which we have already mentioned, Enabling the Transition, the implication is that there is something wrong with the Government roadmap, and it would be useful to hear from you where you think it is deficient-what is wrong with it specifically. It would be useful if all of you could answer that question.

Andrew Raingold: First, Enabling the Transition is a communications document. It is not a green growth strategy, and in the context of a communications document, it is quite helpful. It is very broad, there is some good content and, as I said before, it does focus on the whole economy. Having said that, it is deficient in a number of ways. The first one I would say is in terms of implementation, because I do not think this will reach a very wide audience beyond maybe the sustainability profession or those who are already aware of what the green economy is and the potential opportunities.

We would like to see, for example, a much more usable multimedia website with the latest developments on the green economy and job creation. A good example of this is the US stimulus package website, which shows very clearly where the money is being spent, where there are opportunities in the green economy and particularly the job creation impacts. That is one area, and I think also the name is not very helpful-Enabling the Transition to a Green Economy. It is very long, and I think it puts off the people who do not quite understand what green economy is.

Q28 Chair: What would you call it?

Andrew Raingold: It needs some thought, but maybe I will get back to you on that point.

Q29 Zac Goldsmith: If the tools you have just described were there, is the audience mainstream businesses? Who is not getting the message at the moment?

Andrew Raingold: I think mainstream businesses, but also there is a role to involve the citizen as well, as that is an area that has been completely left out of the green economy. Also, another area in which it could be improved is public relations. It was launched without any press activity or endorsement from No. 10 or the Treasury, which would have been welcome. Also, it should set out clearer principles to achieve policy certainty and stick to them, and most importantly, this document has to become mainstream in all departments, driven by the top with new policies, which is a very important point. There have to be new policies in order to meet the objectives of a green economy.

Adrian Wilkes: I think the most important point that I would make on this is the need for a high-level Government strategy, the concept of which I wholly endorse, and have been pushing for 16 years. We need joined-up Government, not just a few officials in a couple of Departments who are strong advocates of this agenda. We need it to be cross-departmental, very high-level and probably chaired by two senior officials. That brings together all the bits of Government that are relevant to this agenda and at the same time sends out the message of the opportunities here to all parts of Government activity, but we, the UK, just do not have that. In the early 1990s, the Advisory Committee on Business and the Environment said we should set up a unit in Government headed by two Grade 3s from-at the time-the Department of the Environment and the Department of Trade and Industry. We ended up with a smaller unit headed by lower-level officials. This whole area is a key aspect of future social and environmental well-being, but it is also about the future economic competitiveness of this country. Certainly governments from around the world over the last few years since the crash have recognised that and put a lot of effort into supporting their own green industries.

It is time for us to get serious, and I endorse what Andrew was saying, that it was a disappointing launch of a document in the sense that we did not see any involvement, from No. 10 or No. 11. I think Cameron and Osborne need to remind themselves of what they were saying in Opposition in the run-up to the election, when they were making some very substantial commitments to getting behind this agenda, but I have not seen that since the election.

Frank Price: With Andrew, I was a member of the sounding board that helped the consultation process to produce the document, so I know that there is a lot more work that has gone on than is represented by this document. Earlier drafts were much more substantive. They showed a lot more analysis of the different areas of the economy, which will be factors as we go green, including those which will face challenges, those which will face uncertainty and those which will grow very substantially.

Q30 Zac Goldsmith: Can I stop you for a second? In the earlier drafts, were there any specific policy measures or commitments or ideas that have since been removed, and if so, why do you think that is?

Frank Price: I am very tempted to say yes, but I could not give you a precise example. I would have to go back to earlier drafts and look through, but I am sure I could find some.

Chair: If there were, it would be quite useful if you wish to write to us further. We would be very grateful.

Adrian Wilkes: Sorry to interrupt. On that point, I fortunately did see some of the earlier drafts, and from my perspective, there was a failure to make any new commitments. There were the other-

Q31 Zac Goldsmith: Even in the earlier drafts?

Frank Price: The sounding board had severe and very constructive comments to make on the earlier drafts, but this final version is very much more watered down, even the ones we were commenting upon.

Adrian Wilkes: I think we have this wonderful policy timeline here in the Transition document and we have a similar one in the supporting document for investors. It would not take an A-level student more than a couple of hours to read through the ENDS Report over the last couple of years and put this together. There is a lack of detail. We know these things are happening. We know the green deal is going to happen in terms of-

Q32 Zac Goldsmith: It will be interesting to see, if you have access to earlier drafts and so on, what the changes are. That might help us to try to understand why those changes were made and if there were new policy ideas that have since been removed or more details on existing ideas. It would just be fascinating to know why they have been removed and also what the process was that led to their removal. We obviously cannot comment on that because we have not seen the earlier drafts, but if you are able to help with that after the meeting-

Frank Price: If we have two earlier drafts of it we could do a compare and contrast job for you.

Q33 Chair: Do you get any sense of what was driving that effective watering down or where the pressure and lobbying was coming from?

Adrian Wilkes: The most interesting thing about the earlier drafts was the debate around regulation and the role of voluntary agreements, and certainly, from my perspective, "regulation" was perceived as a dirty word despite the fact it is-

Chair: I think Zac Goldsmith is about to pressure you a bit more on this issue.

Q34 Zac Goldsmith: I am. I have one more question before I come to the regulation issue. We are talking about policies and the need for joined-up thinking and so on, and I just wonder whether or not you could elaborate a bit on what existing policies you think need to be beefed up, and how. What are the key policies that need to be strengthened? If there are policies that are not yet on the radar but which should be, in your view, because they are crucial for delivering the green economy, it would be useful to know what you think they are.

Adrian Wilkes: What I will do in due course is supply you with the policy manifesto that we published a couple of months ago. With our 200-odd member companies we look at areas like water pollution control, air pollution control and land remediation, resource efficiency and waste management, carbon management and buildings. There are a few obvious high-profile examples. There is the idea of a framework for low emission zones. Various towns and cities around the country are now thinking of copying what we are doing here in London. It is the same in Europe. We have an opportunity to put in place a framework that gives certainty about how a zone operates and the sorts of standards and how you credit or verify that certain technologies will help the dirty heavy goods vehicle meet good standards. That is an obvious one.

Another great worry of ours concerns the national plans to change the planning system, where they have removed the target for brownfield development. That is going to be very damaging to the parts of our industry that help developers clean up land rather than use greenfields. Again, it is an example of when you look at the future economic picture of Europe and the world, there are supposed to be several hundred thousand contaminated sites in Europe that are ultimately going to have to be cleaned up. God knows how many are in China. If we start the task ahead of the game then we create a home market, our companies develop the technologies and the expertise and then you can start selling abroad. There are many, many examples over the last 20 years where countries like Germany and Japan have put this first-mover strategy in place, and America, funnily enough, before the Bush administration, were tackling things like water pollution control and air pollution and land remediation and created a substantial domestic environmental industry.

Frank, you probably have a few other examples as well of policy failures. But I will supply a policy manifesto, which lists a whole range of areas where we just need better policy.

Frank Price: There was a comment we made a number of times in the run-up to this publication. We know where we need to be in terms of carbon, for instance, in 2050. We need an 80% reduction if you buy into that science, which personally I do. But it is certainly a substantial reduction. Even if it is 50%, it is a substantial reduction, and every part of our economy and our way of life and our behaviours needs to be restructured to deliver that. Some months ago there were ideas for a suite of new coal-fired power stations in north London; they have gone off the agenda now. Jonathon Porritt pointed out in a debate that by 2050, if those five power stations had gone ahead, that was all the carbon we could emit in this country. Nothing else. No cars. No manufacturing. No other coal-fired power stations, no gas fires at home, nothing, just those five power stations, because they would represent 20% of our 1990 CO2 emissions. A little sort of graphic like that in your mind sets the picture for how we are going to have to restructure our whole economy. It is not just the green economy, it is our whole economy that will be restructured to meet that specific environmental target. The linkage within this document and other parts of policy to that fundamental switch in our culture and our whole community appears to be lacking.

Andrew Raingold: I would say there needs to be a green element to all policies, so instead of having a separate Enabling the Transition document, green policies should be at the heart of the Government’s growth strategy. A good example of this is enterprise zones, because it would not have entailed significant additional funds to incorporate a greening element to enterprise zones, and it is important to have a sustainability vision right at the heart of all policies. The Government has got it right with the Olympics. With the Olympics, sustainability was right up there in terms of price and delivery in terms of what the Government wanted to achieve, and the project has met significant sustainability outcomes generally at no additional cost. It was just the Government asking for what they wanted. That is a key thing to bear in mind.

In terms of specific policy, there are three priorities that come through loud and clear from our membership. It is first prices, and in particular carbon prices; secondly, finance, and we have consistently made the case for an ambitious Green Investment Bank to drive the economic recovery; thirdly, consistency in carbon regulation in particular. From the business perspective, there is now a huge range of carbon prices and programmes across the economy and they would like to see these being streamlined with simpler signals, which will make it easier to make a coherent business strategy.

It is not about less ambition; let us be very clear about that. If anything it is more ambition, but we need some kind of streamlining of the existing regulatory landscape because it has become too complicated.

Q35 Zac Goldsmith: My last question, and I am going to merge a few remaining questions, is just to know how important you think regulation is in terms of driving green growth, and whether or not you think there is a risk that some of the good regulations relating to the environment will be threatened or even lost in the red tape challenge. Do you think there is enough-

Chair: Can I just say to our three witnesses, I know you could probably speak at great length on this issue, but we do have one eye on the clock, so if I can ask you to be very succinct in your responses to that.

Adrian Wilkes: As Lord Stern acknowledged and has got various financial experts to accept, we are in an area of market failure and that is why the Government has to intervene. Our members, from their own commercial experience, and all the NGOs, would look at the concept of voluntary agreements, which were a major theme in the early drafts of this Transition document, and say they do not usually work. What has achieved environmental quality improvements over the last 20 or 30 years in this country, and in Europe and America and Japan, is regulation and its effective enforcement.

I still do not understand why the Treasury cannot get its head around this concept. It was George Osborne, just before the election, who made a big speech about the Green Investment Bank, which was very welcome. He also made an even more, in my opinion, revolutionary statement about, "Yes, this is a market failure. When I get into Government, I am going to set the Treasury officials to work and internalise the external costs of pollution." That is my short answer.

Andrew Raingold: I think regulation is absolutely key to delivering the green economy. Our members are very strong supporters of effective regulation, which is normally legal and enforceable and, as Adrian said, voluntary approaches rarely work. In terms of the Red Tape Challenge, I think that does send the wrong signals, but I do not think that will lead to significant deregulatory approach in terms of the environmental agenda because-

Q36 Zac Goldsmith: Why do you believe that? There is a lot of fear among environmentalists and I have had a number of letters from constituents on this issue who are worried about some of the key environmental regulations. Where does your optimism come from?

Andrew Raingold: A good question. I think it was a mistake to put the whole of DEFRA’s and DECC’s regulation into the Red Tape Challenge. I think there was a very big backlash almost straight away. Just from what I said earlier, what we need to see is a holistic approach, and that is where the real opportunities are for simplifying and possibly reducing bureaucracy, but increasing outcomes. I think we are not going to see the removal of the Climate Change Act or the real key environmental regulations. Although there is a lot of that in the media, I think the Secretary of State, Chris Huhne, in particular, was quite defensive on that.

Adrian Wilkes: I am attending the DEFRA Sounding Board on the Red Tape Challenge on Friday, and other than reiterating the point about the fact that if you want to achieve any environmental improvement you have to regulate, I will be pointing out two other things. One is that when Governments talk about red tape, I think everyone is in favour of cutting down the amount of paperwork you have to fill in, but not of cutting away the need to reduce emissions.

Secondly, it is a broader comment but it particularly applies to any concept of anything being deregulated, and that is, let us have a proper impact assessment. Look at all the costs and benefits. Traditionally they look at the costs to the polluting industry and do not think about the wider benefits to our industry, to the wider green economy and to society in terms of health savings, for example.

Frank Price: I share Andrew’s optimism. Mine stems from a sounding board meeting I went to with DEFRA and DECC where officials were adamant that there was not a whole bonfire of the regulations going on in the environmental sector. The other part of my optimism comes from the fact that most of what we are dealing with is European legislation anyway and we cannot get rid of it because it is coming from a different body.

Just to add my voice to the benefit of regulation, back in the 1980s we had a thing called the Auto-Oil Programme, which was led from Brussels, and I sat on many groups and guidance groups for the European Commission, and that has led to the air quality standards that we have now. It has led to the air quality framework directive and the standards that led from that, and the vast investment that has gone into our auto programme, converters, energy efficiency in engines and so on, and we could go on forever.

That was because of a long-term view of the regulatory framework. Back in the mid-1980s, early 1990s, we knew what the standards would be in 2011 in terms of auto emissions, and that long term clarity in the regulatory programme gave industry the ability to invest in a programme in a timely way. Compare that to what is happening with carbon reduction commitment and other aspects of current policy around carbon management in the workplace and within industry and the two are poles apart. One where we have regulatory certainty, which led to investment and delivery through effective-based standards and regulation, and one where we have cut and change and cut and thrust, but dependent on I do not know what.

Chair: That is very helpful, because just as we would like to see a joined-up Government, we would also like to have a joined-up Select Committee, and I think those comments should be read equally to a parallel inquiry in respect of air quality. We need to move on now.

Q37 Mr Spencer: You have mentioned the Treasury quite a lot this morning, and I just wonder if pre-election and post-election reality bit pretty hard because of the size of the black hole and the pressure public finances are under, but ultimately this transition is going to take cash and we do not have the cash in the Treasury. I just wondered how you think Government is performing in encouraging that sort of investment, and is it doing enough to stimulate the investment in the green economy?

Adrian Wilkes: When I supply our members’ policy recommendations, you can see very few that require public expenditure. If you correct market failure and internalise the price of pollution, you then put it back on the polluter and not necessarily on the Chancellor. In terms of stimulating investment, sorry to be boring, but go out there or invite in investors and what will they say? They will say exactly the same as me and my members, because my members are the front people for their investors. The investors invest in companies where there is a certainty about the regulatory framework that is going to drive demand for that company’s solutions.

Andrew Raingold: It is also very clear that there are huge financing gaps for green infrastructure. Ernst & Young have demonstrated that there is a financing gap of £330 billion to £360 billion by 2025, and for that reason the Aldersgate Group supported the introduction of the Green Investment Bank to reduce risks and mobilise finance at scale from institutional investors. I think the update document that was launched in March had some very positive developments, particularly in terms of mandate, structure and priority sectors, but I think one key recommendation, as supported by this Committee, is the borrowing to ensure that the bank is not constrained by not being able to borrow until 2015.

Q38 Mr Spencer: You have mentioned the private sector stepping in, but they need to have confidence, do they not? What can Government do specifically to give confidence to the sector that their cash is going to be so-

Adrian Wilkes: It is the fundamental bedrock of a successful environmental industry, and I suspect for the broader green economy agenda, that a regulatory framework that provides certainty is not chopped and changed. We have seen quite damaging changes to, for example, feed-in tariffs recently. We have seen quite damaging changes to the carbon reduction commitment. We have a likely change to the brownfield remediation target. It is chopping and changing that does not give investors, who are obviously the owners of my member companies, the certainty they need. Frank, you are out there at the coalface working for one of our member companies.

Frank Price: Indeed. I support what Adrian has just said. I do not feel that the Treasury has to put its hand in its pocket, but the Treasury has to be seen to be signing up to these documents so that we know that there will not be a very heavy fist coming down to stop something happening, which is what happened to CRC. The scheme was pretty much cut off at the knees when it was decided fairly arbitrarily, it appeared, that the money paid into the scheme would be taken as a tax by the Treasury and not reinvested in the scheme as it was originally envisaged.

I reiterate my point. We need to have the Treasury on board ensuring and committing to the long-term prospective so that investors will be sure that they have a 15 or 20-year timescale in which they can plan their investment and the returns on those investments.

Adrian Wilkes: Frank has brought up the issue of recycling revenue, and this Committee over a number of years has constantly looked at the Budget and said that the amount of green taxation is unnecessarily or ineffectively low, and there are outside experts, such as the Green Fiscal Commission, I think, recommending quite a dramatic increase in the amount of green taxes.

Of course, if Government is going to intervene and regulate, that can be an emission standard on the tailpipe of a lorry or it can be a tax. If the Treasury-

Chair: I think we need to stop there so we can move on.

Q39 Mr Spencer: I think we all agree that the private sector is pretty good at adapting and looking for new markets, and while we are in recession they are all looking for new opportunities. If the economy turns around, how big is the danger that those investors then just slip back into high carbon investments and abandon the green economy and go and make, frankly, more cash out of high-carbon industry?

Adrian Wilkes: That is dependent on having policy restraints on high carbon, so that might be something like building standards, it might be the CRC or it might be the floor price for carbon. You are right, you have to tackle both sides of the equation.

Q40 Mr Spencer: To be clear, today, if we do not change, is that a danger or not? Are you saying that we need to change regulation to stop that happening?

Adrian Wilkes: We need stronger controls on carbon, obviously.

Andrew Raingold: I agree with Adrian. I think the policy framework is absolutely key, so the more you can do to incentivise this shift and accelerate this shift to the green economy, the less that will be invested in high-carbon assets.

Q41 Mr Spencer: Finally, it appears to me that we are behind the game, obviously. If you look around the world, China, Korea and all these other nations are ahead of us. Is that something that should concern us or is that just a statistic not to worry us?

Frank Price: I think it should concern us. Some 75% of the legislative assemblies in China are engineering or science graduates, so they understand this issue. They understand the green economy; they understand the carbon issue. As Adrian commented earlier about the amount of oil China will produce in terms of emissions per unit of production, they will be outstripping us very rapidly, and the green economy will be in China and the other BRIC nations if we are not careful. We have to move very quickly to ensure our home markets are secure and that we are not just allowing people to export to our economy to green standards that we have already set.

Adrian Wilkes: But China is also a huge opportunity for us. You hear reports that virtually every major river is dead because it is so badly polluted. Who has the technologies and expertise to clean that up? Some British companies do-although, as I said, we have lost skills because of the economic regulatory policies of Ofwat-and so do companies based in Germany, Holland and France. America has have water treatment companies that have been successful for decades, because they were putting in place strong controls on water pollution in the 1970s.

Chair: Sorry, we are just going to have to move on. Simon Wright is going to come in on externalities.

Q42 Simon Wright: We have had a number of submissions that refer to the failure to reflect the full environmental costs in prices. On a practical level, how do you see a system that will reflect the full environmental costs into business activities?

Andrew Raingold: In terms of carbon costs?

Simon Wright: Full environmental impact including carbon costs.

Andrew Raingold: In terms of business and starting with carbon, it is very clear that, while a lot of businesses are reporting their carbon emissions, there is a lack of a level playing field, so businesses are reporting to different systems and methodologies, and for that reason, mandatory carbon reporting for all large companies is essential. This will drive transparency and accountability and ensure consumers and the media and-most importantly-investors can make comparisons between different companies. This is a decision that is imminent. The Government have consulted on mandatory carbon reporting quite recently. I think we are expecting a decision in the autumn.

In terms of other areas, biodiversity is obviously another important issue for business, but it is not at the same stage of carbon in the sense that the methodologies have not been developed to the same degree. Businesses are also struggling with what aspects of biodiversity are particularly material to their operations. Having said that, the Aldersgate Group is starting an initiative on this and engaging with businesses to try to develop a framework for how businesses should be addressing biodiversity and ecosystem services, but in that area it is very much the Government who are taking the lead with the announcements made in the Natural Environment White Paper.

Adrian Wilkes: I will ask Frank to answer this on the grounds of background and experience, but in conceptual terms there are two ways of internalising costs and those are to regulate and tax the pollution. Behind that decision, of course, you need proper impact assessments to understand the cost of pollution on health, on amenity, on our natural environment and biodiversity, so ultimately you have some economists doing that assessment to put the full facts in front of Ministers.

Frank Price: I think the engineering industry, which I come from, does not have a clue how to do it. Some of them will engage with the Carbon Disclosure Project and use DEFRA guidance to put a figure on its carbon emission, its carbon footprint. But the carbon footprint in the supply chain is very often missed from that, because a company may not be familiar with the scopes of carbon emissions-the first scope is your direct emission, when you burn something in a boiler, for instance. Your second scope is when you buy some electricity and someone else is producing carbon. The third scope is the indirect costs, when you buy a product, so your third scope emission is somebody else’s first and second scopes.

Those third scope emissions are not understood within the supply chains of industry to any particular extent. There is a growing group of professional people who are interested in these issues, but it is not understood within industry and it is not understood by the people who try to control the investment or try to regulate the investment within the industry sectors. Regulate is probably the wrong word.

There is a failure to understand how those costs can be internalised, and I do not believe the thinking has happened yet to enable that full understanding to go ahead. Mandatory carbon reporting would be a massive step forward in that, but it is the SME sector that is going to do that for us- as it is the sector that drives initial growth, if you like, in times of emergence from recession-and those people will not have the time to even think about these issues. They will be too busy trying to develop a product, trying to innovate and trying to get something into the marketplace to grow their business.

It comes back to Adrian’s point. It is through fiscal and regulatory means that we have to internalise those costs.

Adrian Wilkes: I simply endorse what my colleagues have said about mandatory carbon reporting. In the 1990s the debate was about environmental reporting more generally, and if we were to expand from carbon, I would like to see some resource use reporting or at least the establishment of some resource efficiency benchmarks in major industry sectors in our economy. The concept of doing that is in the IPPC Directive, but the Environment Agency have never implemented that and there has been very little interest in addressing resource use across our economy. We will be pushing that to Ministers over the coming months.

Q43 Simon Wright: In relation to the Natural Environment White Paper, do you think that that goes far enough on some of these issues, and how do you see a set of natural accounts prepared by Government linking into the way businesses report their activities?

Andrew Raingold: I think it is right for Government to take the lead, because this is a social good and there is a role for Government in ensuring that we sustain our natural assets and natural capital, and we also welcome the EU commitment to no net biodiversity loss.

One point I would like to raise in terms of the framework that is set out in the Natural Environment White Paper is that it is not clear what scrutiny there will be in terms of measuring natural capital and if there needs to be some kind of body, in a similar way to the Climate Change Committee, to scrutinise progress. The Government are establishing the Natural Capital Committee but it is not yet clear what role the committee will play.

Frank Price: I will just add on that, there is a lot of work being done within the accounting profession on determining accounting standards for natural capital. I could point you in the direction of that work.

Q44 Simon Wright: That would be helpful, thank you. How can we ensure that UK business competitiveness is not adversely affected by going further than other countries in reflecting environmental costs and the products and services they offer?

Adrian Wilkes: I think we have to firstly take a holistic picture and look at the opportunities here, and those go back to the fact that at the moment it is a £3 trillion worldwide market place. If we follow the policy leaders 5 or 10 years afterwards, which over the last five decades we have done in this country, we will simply be buying in their technologies when we decide to control a particular environmental problem.

We have to remember there is an opportunity, if we move fast, but that opportunity is not just for our industry. That is what I welcome about this Government Transition document; that they do realise that the environmental agenda, the resource efficiency agenda, is economy-wide. If we go back to the point that there are going to be substantial resource constraints, the growing world population-and growing standards of living not just in the West but in China, India, South America and, hopefully, Africa - that will mean that demand for those resources is going to balloon, so there will be companies and economies that narrow down the old Factor Four argument. There are arguments that you could have a Factor 10 or even Factor 20. You could dramatically increase resource use efficiency in this country.

That is all about seeing the opportunity and not thinking, "Oh my God, British industry is going to migrate out." I am going to be rather bold here though. In some areas, particularly in the carbon intensive areas, I think there is a need to look at the idea of some sort of carbon import levy so that our British industries are not at a disadvantage.

I am always wary of companies and industries saying, "We are going to relocate because of the environmental costs of this particular policy or this particular regulation." For all the time I have been involved in environmental politics for 25 years it has been a constant refrain. It always needs very careful scrutiny.

Andrew Raingold: There is a concern about leakage of economic activity to areas with less stringent environmental policy, but a number of studies have shown this is only a general concern in a very small number of industries and this has to be reflected in the policy framework. It should not reduce the overall ambition, but there will have to be some kind of exemption for a very small amount of energy-intensive industries.

Q45 Peter Aldous: If we can just look at the relationship between Government and business and the dialogue, the Government set up the Green Economy Council to engage in business, and NGOs have set up their own Green Economy Coalition to lobby Government. Are those vehicles getting the message across to Government, do you think?

Frank Price: No, is the short answer.

Q46 Peter Aldous : Why not?

Frank Price: I had not heard of the Green Economy Coalition until today or yesterday when I was speaking to Adrian. The Green Economy Council is completely opaque. I would imagine that, apart from those people who are members of it, it is not even known about, and if you were not involved directly in this document, you do not even know yet that it has been published. The main audience is the key investors who are going to drive our green economy, and we do not have a list of those people and we are not targeting them.

Andrew Raingold: I should be able to shed some light on this because the Aldersgate Group is a member of both bodies. In terms of the Green Economy Coalition, to start with, that is very much a global organisation and it is looking to influence global policy. So it is not very active in the UK, but it will have, hopefully, an important role in Rio and other international developments.

In terms of the Green Economy Council, the Aldersgate Group very much welcomes the creation of such a body. It is very focused on business and it represents a good cross-sector of the economy. In terms of the improvement it is still very early days. The Council has only met twice. But there could be, I suppose, much clearer objectives and a more active work programme. As a good model, I would suggest the Commission on Environmental Markets and Economic Performance. This was set up about five years ago and was similarly a body of businesses but also had representation from academics and NGOs, and they had a very strong work programme in between the Council meetings.

The Green Economy Council meets four times a year, and what is needed is a very active engagement in between the meetings where the companies can engage with officials to ensure that the objectives of the Council can be met, and also to increase the influence the membership can have on policy development.

Adrian Wilkes: While it is very important that the Government addresses the greening of the whole economy, our perception is that the Council does not have sufficient representation from the environmental solutions industry. Frank was on one of the lower, dare I say it, committees, something called a sounding board. Our industry has the experience of helping, so we need better representation. I am certainly not nominating myself, but industry experts.

Q47 Peter Aldous: Just to move on, it is a concern that Mr Price, who is at the forefront of this, did not know about one of these organisations until yesterday. Would you say it is a concern that the Government Department that is leading on the green economy is DEFRA, which might not have a track record of engaging with businesses?

Andrew Raingold: I think firstly the green economy is a joint initiative by three departments, but you are right, DEFRA has taken the lead and we would suggest that BIS should take the lead because the green economy fundamentally is about business, innovation and skills. It is less, we would say, about the environment and rural affairs, so we would like to see BIS lead on it. Also, we would like to see much more active engagement with the Treasury and other Government departments.

Adrian Wilkes: I would largely endorse that. I think DEFRA has a reputation in Government for punching below their weight because they do not have enough businesses on their side, although they certainly have the environmental industry behind them.

If you look at the history over the last 10 to 15 years, it is reflected by, I think, John Gummer, the minute he left office in 1997, said we should do away with the DTI, or BIS as it is now, because it is such a roadblock to environmental progress, and there is a huge need to ensure that BIS and the Treasury understand this agenda and see its opportunities, rather than seeing it as a cost.

Q48 Peter Aldous: In 14 years, has BIS improved? Is it still a roadblock or do you think it has improved?

Adrian Wilkes: It would be a very rude, crude thing for me to say there are a lot of dinosaurs in there, but they are too close to those problem-holders. Let’s face it, this is a huge challenge for the whole of society, and particularly for the rest of British industry. Really they want to put their head in the sand, as they have for the last 15 to 20 years, and pretend it is not happening. BIS, on the whole, are not proactive enough. Who in BIS sponsors the environmental industry? They sponsor every other industry. We are operating in a £3 trillion marketplace. In this country, we generate GDP of £110 billion and we employ 900,000 people and there is no sponsoring unit in Government to help us. It is incredible.

Q49 Chair: I think our time is up. All three of you have been generous with your time, and we appreciate your written evidence and the fact you have come here this morning, so thank you very much indeed.

Adrian Wilkes: Thank you for inviting us.

Prepared 1st November 2011