Energy and Climate Change CommitteeSupplementary written evidence submitted by Michael Fallon MP, DECC

Re: Energy and Climate Change Select Committee Inquiry into oil refining in the UK—follow up points from oral evidence session.

I agreed to write to the Committee on a couple of points following my appearance at the evidence session on 25 June 2013.

First, I would like to clarify the position regarding the CRC Energy Efficiency Scheme. This scheme started on 1 April 2010, and is designed to improve energy efficiency and cut emissions in large public and private sector organisations. As a result of stakeholder feedback that the scheme was overly complex and administratively burdensome, Government committed to review its operation and design with a view to simplifying it. It consulted on this in March–June 2012 and published a Government Response in December 2012. This announced that the simplified scheme will come into fully into effect from the start of Phase 2 (2014–15), with some changes being introduced for the final two years of Phase 1 (2012–13, 2013–14).

The simplification of the CRC Scheme will reduce the scheme’s overlap with other policies such as Climate Change Agreements (CCA) and the EU Emissions Trading Scheme (ETS). Facilities and installations covered entirely by CCAs and EU ETS installations will not be covered by CRC. For refineries, the UKPIA sponsored study by Purvin and Gertz estimates that the 2013 (final year of phase I) costs to be in the region of £12.2 million across the seven refineries. As a result of the changes to the scheme they do not consider that there will be costs for refineries in the second phase.

Government took the decision to end revenue recycling and allow HMT to retain the revenue because, as well as driving energy efficiency, CRC revenues are helping to address the deficit. Further, not recycling CRC revenue gives a significant secondary benefit of a clearer carbon price signal which can help strengthen the business cases for energy efficiency projects. The decision to end revenue recycling was taken against a background of unprecedented pressure on the exchequer and the Chancellor has announced that he would seek to remove the tax raising element of the CRC scheme when public finances allow. The CRC scheme is expected to deliver £3.1 billion in revenue this spending review period: 2011–12—£673 million; 2012–13—£721 million; 2013–14—£724 million; 2014–15—£913 million.

In his 2012 Autumn Statement, the Chancellor committed to a full review of the CRC in 2016. We are continuing to keep the regulatory landscape under review, in order to ensure policies provide a supportive environment for business.

Second, the committee referred to an example of “gold-plating” provided by the refining sector at the first evidence session. This refers to an objective for a 15 minute measurement of sulphur dioxide, which industry consider represents a “gold plating” of EU limit values. To clarify, this was last debated in 2007 as part of a consultation on the UK Air Quality Strategy. The UK had existing domestic legislation in place regarding limit values that were stricter than proceeding EU legislation. The great majority of respondents to the consultation agreed that the limit value should stay the same and not be lowered in line with new EU limits as this would be a retrograde step.

I do not believe that “gold plating” is the issue here. Rather, the review will explore whether there is any evidence to suggest that implementation and enforcement of EU legislation is unaffordable or more burdensome in the UK than other EU countries. Nevertheless, I would encourage the sector to come forward with evidence where they consider there is a risk that EU legislation is or has been “gold-plated”.

As I stated at the session, tougher new rules have been imposed across Whitehall to prevent government departments adding to UK business costs by adding additional burdens to EU legislation. Furthermore, I have also committed to withhold agreement for any new regulations that gold-plate EU legislation unless it can be demonstrated that it is in the UK’s interest.

Finally, I would like to thank the committee for its work in this area and look forward to the inquiries findings which will be taken into account as part of the cross Government review into the role of the refining, wholesale and import sector in the supply of refined products into the UK.

June 2013

Prepared 25th July 2013