Environmental Audit Committee - Minutes of EvidenceHC191

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Oral Evidence

Taken before the Environmental Audit Committee

on Wednesday 11 December 2013

Members present:

Joan Walley (Chair)

Peter Aldous

Neil Carmichael

Martin Caton

Katy Clark

Zac Goldsmith

Mark Lazarowicz

Caroline Nokes

Dr Matthew Offord

Dr Alan Whitehead

________________

Examination of Witness

Witness: Rt Hon Michael Fallon, MP, Minister of State for Business and Enterprise, Department for Business, Innovation and Skills, and Minister of State for Energy, Department of Energy and Climate Change, gave evidence

Q222 Chair: Minister, can I give a very warm welcome to your repeat appearance before the Select Committee after a very short space of time? We understand that your officials are out there in the queue waiting to come in and I certainly hope it will not be too long before they are able to join us. On that basis, we are happy to proceed.

I wanted to start off our questioning on green finance with a very quick reference to the fact that the Climate Change Committee has issued its report on the Fourth Carbon Budget this morning. We would be very interested to hear from you what kind of timescale you now envisage and whether, in view of the recommendations of their report, you feel that there is any need at all for further revision, or whether there is any timescale that you could share with the Select Committee.

Michael Fallon: Thank you for your welcome. I am afraid you are, as always probably, ahead of me. I have seen reports of the Committee on Climate Change’s report, but I have not yet had time to see it.

Q223 Chair: In terms of its having been issued today, are you envisaging a very quick response? How are you envisaging linking with other departments in terms of the Government’s response? Will it be DECC or will it be Treasury? Who will be leading on that? You must have some kind of a timetable in mind.

Michael Fallon: I do not, I am afraid. I have not had time to see the report yet, so I must do that. It has been a rather busy week.

Q224 Chair: Perhaps we will come on to that a little bit later.

We want to come down to the local from the national and ask you to share with us what more you think could be done to facilitate major investment in green infrastructure, including renewable energy, in respect of the local initiatives that there are. We understand that the Community Energy Strategy was due to be published this autumn, but it has not been published as yet. I wonder if you could perhaps shed light on that, the reasons for the delay and the priority that the Government is giving to local energy investment.

Michael Fallon: On the first point, a huge amount of investment is now taking place in low carbon and renewables, partly because the framework is now being cemented into place through the Energy Bill, which I hope will become law in the next few days, and the details of the final strike prices, which we published last week, and our progressing of the FiT-enabling projects as the intermediate regime between the renewables obligation and the Contracts for Difference that are coming. We are seeing a surge of interest in renewables projects.

On the Community Energy Strategy, yes, it has been a little delayed. We hope to publish it early in the New Year. That does not mean we are not doing anything about community energy: we have a number of funds and instruments, but we want to bring them together into a coherent strategy, which we have been discussing with the various stakeholders, and we want to see what the barriers are to local groups either generating their energy, purchasing their energy or indeed with schemes to reduce the demand for energy. We want to see what the barriers are, whether they are barriers of finance or whether it is the capacity of the communities or whether there are other regulatory or planning barriers that get in the way. These are the issues that the strategy will address and I hope it will not be delayed much longer.

Q225 Chair: Do you see local authorities as being part of the mix in terms of being in a position to invest in energy at a local level and their need to have green energy finance to do that?

Michael Fallon: Yes. I see community groups wanting to work with local authorities, which is only logical. Some local authorities are already quite heavily involved. My own in Kent, for example, has a scheme-I think it is called Lumina-and works with a company to buy collectively on behalf and sell energy to small businesses. I would envisage us mapping out a route for community projects to work with local authorities on schemes of interest to them, whether that is generation or purchasing, or indeed, as I said, reducing energy use or energy demand.

Q226 Chair: You said "mapping out a route". I just wonder whether there is advanced work going on that will then be reflected in the strategy you referred to that will be published early in the New Year, because there are huge numbers of obstacles for local authorities and community groups to overcome, are there not?

Michael Fallon: There are, and there are barriers, and I think it is legitimate to ask why there are not more community schemes and why they get to a certain point and then do not get any further. That is what I hope this strategy will address.

Q227 Chair: I am tempted, given that you have mentioned Kent, to mention Stoke-on-Trent. I just wonder, without going into any details, whether the kinds of obstacles there are to getting investments in renewable energies underway are top of your list in terms of trying to see how the investment can be found.

Michael Fallon: There are a number of Wave 2 City Deals that the Government is currently looking at that have a very strong energy component and the Stoke and Staffordshire proposal is one of those that we are looking at intensely at the moment.

Q228 Chair: I wonder if I could just press you-not on that direct case, because that would be wholly improper-on the cross-cutting agenda that is needed from other Government departments, whereby, for example, that is a programme where any scheme applying to it would require Cabinet Office, BIS, various departments; whether there is the sort of mechanism in place in Whitehall to be able to unlock some of the barriers that there currently are to making sure that the finance is available locally.

Michael Fallon: Yes. We do look at these things collectively. It is in the nature of the City Deals, the propositions, that they do of course cover funding streams from a number of different Government departments. That was the whole point of the Heseltine devolution, that there are bits of the transport budget and bits of the housing budget and bits of the skills budget and other departments being asked to contribute where necessary. We look at these things collectively, we assess them across Whitehall. Greg Clark is in overall charge for the Cabinet Office, but I can assure you that DECC and BIS, which I represent jointly, are extremely involved in a number of these projects.

Q229 Chair: I somehow suspect that converation will continue, but finally, what advice would you give to local authorities wishing to make a mark on investment in renewable energy?

Michael Fallon: What advice would I give them to-

Chair: To local authorities wanting to try to find ways of investing in renewable energy, given the Government’s policy. What would be your advice to them to make sure that they do it?

Michael Fallon: I think the best route for these projects is probably through the Local Enterprise Partnerships, which local authorities play a major part in, or through the City Deals, or indeed to talk directly to the Department, but the Community Energy Strategy I hope will set out a little more clearly the various routes that these schemes can take.

Q230 Chair: Finally, can I just ask you about crowd funding, because we have been told by various people, including Triodos Bank, that the Financial Conduct Authority might be taking steps to regulate crowd funding, which of course can be a significant source of funding for community energy. Have you had any conversations at all with the Financial Conduct Authority to ensure that funding for community energy schemes is not going to be compromised in the future?

Michael Fallon: I have not myself directly, but I am obviously concerned that we have this alternative source of finance-of course it carries risks for investors, but is becoming more mainstream-and I do not want to see it choked off at the point where it is becoming more mainstream, so I am concerned. Of course, there are risks, and risks should be regulated and those who want to invest their own money through crowd sourcing need to be fully aware of the risks that they are taking. But I think anything that was done now to make this more difficult would be unfortunate, given the difficulty that small businesses in particular have in raising finance through the more conventional means from the banks.

Q231 Neil Carmichael: Hello there. I just want to talk about the Green Investment Bank, and in particular, just generally first of all, how do you think the progress is in connection with its formation and direction of travel?

Michael Fallon: I think the Bank is making good progress. It has some £734 million out there in around a dozen projects, so that has been a fairly swift start from the blocks. It is attracting private investment alongside its own money-that is extremely important-and it is covering a range of different types of technology. As you know, its priority areas are offshore wind, energy efficiency, waste recycling and waste to energy and the projects it is investing in seem to cover most of those areas, so I think the Bank is off to a pretty good start.

Q232 Neil Carmichael: In comparison with the German equivalent, KfW, one obvious difference is effectively the balance sheet. KfW’s is about £500 billion, as compared with the Green Investment Bank, which is pretty much tiny. Does that worry you?

Michael Fallon: The KfW has been going for a long time now-I think it has been going for 60-odd years-so it is a very well-established part of the German financing landscape and no doubt the Green Investment Bank will build up over time. But it has all the funding it needs for the moment; it has funding through to the end of 2015/16. It has plenty to be getting on with and plenty of projects to be investing in, so I think it is a little early to start comparing it directly with its German equivalent.

Q233 Neil Carmichael: But do you think that the direction of travel is towards the sort of scale of KfW?

Michael Fallon: That is certainly possible. We will have to see, first of all, how it gets on in borrowing from the private capital markets alongside the borrowing that it can now do from the National Loans Fund. It is still a very new bank, but I think the direction of travel is right. I am not sure I should speculate on whether it will reach the scale of its German equivalent.

Q234 Neil Carmichael: Do you think the restrictions on its borrowing capacity have anything to do with that?

Michael Fallon: No. I think it was right at a time when our overall public borrowing was hopelessly out of kilter, with the legacy we were left by the last Government-a deficit of course that was far larger than that of most other countries and is simply off the scale when compared with Germany’s financial position. We were not able to set up an equivalent to the German bank and allow it to borrow on that scale. But we will see how we go. I think the Bank has made a good start.

Q235 Neil Carmichael: As far as I understand it, KfW is not on the public sector balance sheet, but of course the Green Investment Bank is. Is that something that is going to hamper the progress of the Green Investment Bank?

Michael Fallon: No, but the choice we have made over it does of course mean that we will have to continue to seek state aid approval for its continuing operation. It has approval up until October 2016 and we will have to go back to the Commission and extend that approval if we are to continue to fund its borrowing rather than push it out into the capital markets.

Q236 Neil Carmichael: The Autumn Statement obviously talked about our debt and deficit. It pointed out that it is going to be a bit longer to reduce the debt as a falling percentage of GDP until about 2016/17, but we were told that debt levels will be similar, if not falling, by 2015/16. Does that alter our view about the scale of the Green Investment Bank?

Michael Fallon: No, it does not. I think we always made the position clear about the Green Investment Bank: that we should not allow it to borrow openly until we were in a better position on the public finances, given the depth of the recession, which I do not think was fully understood or fully mapped when this Coalition Government started. We only now realise the depth of the recession and the bust that we inherited, and given the very sluggish growth in the eurozone, I think it inevitable that our timescale for getting into a healthier financial position has slipped back a bit.

Q237 Neil Carmichael: Thank you. The National Infrastructure Plan, which was also published last week, states, "The Government will be looking at options to bring private capital into the Green Investment Bank to enable it to operate more freely in delivering its objectives". Does that imply some sort of relaxation of the borrowing rules?

Michael Fallon: No. It follows through on what we said originally, that in the longer term we want to see it able to borrow privately and it will now be borrowing a proportion. I think the amount it can borrow from the National Loans Fund is some £500 million of the £800 million, so it will now be able to test its ability to borrow in the private markets. This is a very new bank, so it has to establish its-

Neil Carmichael: Credibility.

Michael Fallon: Creditworthiness, and it has to establish its track record and its ability to secure a decent commercial return. These are relatively early days.

Q238 Neil Carmichael: But you see it playing a part in the National Infrastructure Plan development?

Michael Fallon: Yes, I do. As I said, I cannot look ahead to tell you that it is going to match in size the scale of the German operation, but I certainly think it is already playing a part in the national infrastructure we need. That is because the investment we need in energy is such a large proportion of the total requirement for new infrastructure.

Q239 Neil Carmichael: Last but not least from me, the UK Guarantee Scheme versus the Bank: what are the determinants of the decision between those two?

Michael Fallon: They do different things. The UK Guarantee Scheme ensures that it is easier for those financing these big projects, whether they are transport or nuclear power or a biomass conversion, to access that kind of finance in the markets; it enables them to do it on slightly easier terms. It does not make it cheaper, but it enables them to do it over a longer timeframe. The Green Investment Bank of course is taking a direct stake in some of the projects, so there is relatively little overlap between the two. There are a couple of examples, one of which is Drax, where both instruments have been deployed, but they have different purposes.

Q240 Mark Lazarowicz: A last point on the related point about the linkage with other initiatives: how do you envisage the Green Investment Bank linking in or having a relationship with the British Business Bank and how that develops?

Michael Fallon: It is early days to make a judgment on that. The Business Bank is only just getting underway, but obviously we will need to make sure that the two are fully aligned and they are not tripping over each other and trying to invest in the same kind of project. The British Business Bank brings together the various Government schemes that are out there to get capital into new types of business in different ways, but the Green Investment Bank obviously is looking at projects in these four particular sectors. I would hope that a project that came forward or that the British Business Bank heard about that fell into one of those four sectors would get referred across to the Green Investment Bank.

Q241 Chair: Minister, can I just go back to your questions with Mr Carmichael? Looking at the Autumn Statement and the fact that it said the Government’s target of debt to be falling as a percentage of GDP will not now be met, as Mr Carmichael pointed out, until 2016/17, I am not quite sure where the Government is on this, because what we need is certainty as far as the Green Investment Bank is concerned for those looking to invest in 2016 and 2017. I wonder whether you will allow the Bank to borrow in 2015 and 2016, as originally indicated. I am still not clear about where the Government is in relation to that.

Michael Fallon: We have set out the borrowing that it can undertake up until the end of 2015/16, up until the end of March 2016. That is £3.8 billion in total and I am quite sure that is going to be adequate for the next couple of years. Beyond that, we have not allocated a specific figure. That then falls into a new spending review period. It is not possible for us to make those kinds of allocations now, before the election and before the construction of possibly a different Government.

Q242 Chair: But are there not problems, insofar as we have not reached where we would have expected to be with the Green Investment Bank because of the graph in the Autumn Statement, and, therefore, if the Government is going to go back to review the state aid rules, are we not leaving investors a bit short? There is not going to be any certainty for 2016/17, which is what is needed for long-term investment. Do you not see a sort of inconsistency there?

Michael Fallon: We have always known we would have to go back to the Commission to get the state aid approval continued beyond October 2016, so there is nothing new there for investors. Look, we are committed to this Bank and we are going to make sure this Bank continues. This is not just something for this spending review or this Parliament. We are committed to this Bank, but we did not want it adding significantly to our borrowing requirement while we were still taking measures to reduce that requirement.

Q243 Chair: Will you be pressing the Treasury to make sure that the amount that would be allowed for 2015/16 will still be there?

Michael Fallon: Yes, for 2015/16, it will be.

Q244 Chair: It will be, okay. Just finally on the European state aid rules, I understand that the Green Investment Bank could invest in community projects now, as long as that was in the remit of the Green Investment Bank as approved by Government. Is there any likelihood that the Government and the Green Investment Bank will perhaps be looking at or reconsidering that remit to allow that investment to be taking place in small community schemes?

Michael Fallon: Yes, they can invest in small-scale schemes, provided they are in those four priority areas, so if it is a small-scale waste scheme or a small-scale energy efficiency scheme, yes, the Bank can already invest. We continue to discuss with the Commission whether that could be extended into other technologies. The Commission’s view is that the Bank should not be investing in areas unless there is real evidence of market failure, and simply because it is a community scheme does not mean necessarily that there is market failure. It might just be a different way of putting a project together. That is something we continue to discuss with the Commission.

Q245 Chair: Forgive me, but I have had conversations both with the Green Investment Bank and with the European Commission officials and get the sense that both are saying, "The other will not allow us to do it". Surely there should be some quite straightforward way of being able to arrive at a situation where that kind of investment for the small-scale community energy schemes could get over both hurdles, be eligible for Green Investment Bank and not be in breach of state aid rules.

Michael Fallon: I would like to see it, but the state aid rules are there. They are there technology by technology and they are based on whether there is real evidence of market failure in a particular technology. That is quite hard to argue, for example, for onshore wind or hydro power or for solar. It is easier to argue for energy efficiency or waste from energy. That is the difficulty, but we continue to discuss these things with the Commission.

Q246 Dr Offord: I am a little bit confused, because I understand that the Green Investment Bank was seeking approval to go into certain sectors and seek state aid. Do I have that incorrect?

Michael Fallon: No. As I said, we are discussing with the Commission whether the Green Investment Bank could have more scope to invest in some of the smaller scale projects, but at the moment, we are restricted to those areas where there is market failure, and that is why up until now the Green Investment Bank has been focused on areas like offshore wind and energy efficiency and so on. But I would like it to have a wider scope and I would also like-picking up the German point-us soon to be able to establish with more certainty how it will continue after October 2016 in some of these areas.

Q247 Dr Offord: Mr Carmichael has mentioned Germany’s KfW, and I understand that they lend to community energy schemes, but that we are currently banned in the UK from doing so.

Michael Fallon: That may be right, but their borrowing model may be slightly different. I think Mr Carmichael was drawing our attention to the fact that it was almost all private and did not involve public funding. That is the difficulty. Where there is public support involved, direct public support from the Treasury, we need state aid clearance and there are quite tough state aid rules to negotiate.

Q248 Dr Offord: Okay, thank you. My final question is, why didn’t the Government seek state aid approval on a further range of measures in the very beginning?

Michael Fallon: State aid should not be made available to areas where the market is able to finance these things. It would not have been possible to have received state aid approval, nor do I think it would be right to get state aid approval, for example, for the Bank to invest in onshore wind, or indeed large solar farms, where there is plenty of evidence that companies and investors are quite happy to invest themselves.

Q249 Martin Caton: In its evidence to us, the New Economics Foundation suggested that quantitative easing could be adjusted and used specifically for green investments. Is this something the Government has considered or is considering?

Michael Fallon: No. Quantitative easing is a matter for the Bank of England and the Monetary Policy Committee. Parliament has given that committee a very precise remit to focus on price stability, and I think it would undermine its task of pursuing price stability if we started to give it conflicting policy objectives or asked it to target certain sectors of the economy or indeed to start thinking about how some Government spending programmes would be financed. I would not support that.

Q250 Martin Caton: We know the Government is not keen on the financial transactions tax being taken forward by some other European countries. Have you in BIS or the Treasury looked at whether there is scope for some other form of tax or fiscal incentives on financial transactions to improve green investment?

Michael Fallon: We are not opposed to a financial transaction tax in principle, but we believe it would only be acceptable here, it would work only if it was done on a global basis and that kind of consensus is simply lacking at the moment. There is not even a consensus in the European Union. There are only 11 member states, a minority of the member states, who are currently signed up to trying to proceed with it and we do not think that is the right way to make policy. Of course if they did go ahead, it could be quite damaging to us here. It could put up costs and damage our financial interests, so we are obviously concerned at the extent to which the European Union is pursuing this. We do not think it is very sensible to do this unilaterally. You will recall that Sweden tried this back in the mid to late 1980s and had to abandon it.

Q251 Caroline Nokes: I wanted to ask about how Government monitors the adequacy of current levels of green finance and specifically which department is responsible for it.

Michael Fallon: The Treasury publishes annually the National Infrastructure Plan and that lists the major projects. It may be we should go perhaps further than that and look at the way the projects there are tabulated just to give everybody a running check on how the green projects are going on. If that is your suggestion, I would be happy to look at that.

Q252 Caroline Nokes: Do you think that there would be any merit in having an independent body evaluate the adequacy of green finance?

Michael Fallon: That is certainly possible. The way we monitor its progress is predominantly through the information updates in the National Infrastructure Plan, but there may well be merit in having somebody more independent monitor the number of projects that are coming forward. There may be scope for this Committee in doing that.

Q253 Dr Whitehead: Do you think that potential green low-carbon investors have a legitimate complaint when they talk about a lack of policy certainty in the energy sector or do you think it is as good as it could be?

Michael Fallon: Yes, I think it is. Obviously if you are undertaking a major revision of the energy market and you have a massive piece of legislation going through both Houses, of course you are going to have potential investors waiting to see what the final outcome will be. I hope that we are only a few days from that, but throughout this year, we have been making the picture more and more certain. We have brought forward the publication of the draft strike prices and the draft Contracts for Difference; we have indeed brought forward the final strike prices that were published last week; we will be publishing the delivery plan I hope next week, the final delivery plan, with more detail of the Contracts for Difference; we have committed to running a capacity market next autumn for capacity four years hence; we have run the competition for the so-called FID-enabling projects and we have some 16 projects going forward into the next round. There may have been some uncertainty a few years ago, but there is much more certainty now about the landscape for investment in low carbon and you have seen that in the agreement with EDF over Hinkley and the offer of a guarantee to Horizon Hitachi in respect of Wylfa. You see that on the nuclear side as well.

Q254 Dr Whitehead: The change that you mentioned to the feed-in tariffs, particularly for solar energy and onshore/offshore wind, that was announced as a final version of the draft version last week-which had relatively small changes from the draft version-is that now a pretty secure long-term iteration of where those strike prices are likely to be?

Michael Fallon: Yes. These are the final strike prices and they run right through to 2018/19, I think. The Levy Control Framework figures are there. We consulted on this throughout the summer and we had a lot of response from the industries concerned. We did make adjustments, as you have spotted, to the draft prices that were published at the end of June, slightly increasing the price, I think, in the final year for offshore wind and further degressing the prices that were being offered for onshore wind and for large-scale solar. I think there has generally been a welcome for those final prices, and above all, a welcome for the certainty that investors now have.

Q255 Dr Whitehead: On 2 December, you said, "Mature renewable technologies, including onshore wind and large-scale solar farms, should not receive Government subsidies" and on 4 December, it turned out they were going to receive Government subsidies. Is that the certainty we are looking for?

Michael Fallon: No. I think you have slightly jumbled something. I did say that I did not think they should be subsidised forever and I do not. As technologies mature, the justification for a subsidy disappears. I do not think it right to ask our ordinary taxpayers to cross-subsidise something the market is perfectly prepared to bear. That is the importance of seeing those prices degress over the four-year timescale of the Levy Control Framework. Beyond that, who knows?

Q256 Dr Whitehead: The general point I am trying to get across-I did not see the word "forever", I have to say, in what was said at The Spectator meeting, but there you are. There is a difference between signals that have been given out and what happens in terms of the process. For example, at the time of the announcement of the changes in the feed-in tariff, it was said, "This is effectively the end or getting on for the end of subsidies, underwriting for onshore wind, and it is all going to offshore wind". It did, to a very small extent, and the degression rate stays roughly as it was, and, therefore, what came out of the process appeared to be rather different from the signals-I hesitate to say being spun-that were being given out in the first place. Do you think that process is as good as it could be in terms of getting investors clear about what the direction of policy travel is as far as underwriting for green technology is concerned?

Michael Fallon: You may be placing a little more weight on ministerial remarks and statements and speeches than those speeches can bear. What matters is the strike price itself. The strike price is there, it is final, they have been published for each year and everybody can draw their conclusions from it. The offshore wind industry argued very successfully that the final year’s degression was a little too harsh if we were to be in sight of bringing on some of the round 2 projects, and I think they are now in a much happier place. So far as onshore and solar are concerned, these are increasingly mature technologies. But the prices are there now and everybody can see exactly what they are.

Q257 Dr Whitehead: Is there any relation to the higher tariff that effectively has now been announced for offshore and the general trajectory of the Green Investment Bank’s role in investing in offshore? Is it envisaged that there will be any quid pro quo there or the Green Investment Bank’s appetite would remain undiminished?

Michael Fallon: That is matter for the Green Investment Bank to be sure that they are making a commercial return on these projects, but certainly offshore wind is one of the areas that is extremely expensive, one of the areas in which some support is still necessary.

Chair: We have a Division. It would be helpful for the convenience of the Committee if we went to vote and just came back a quick five minutes following that.

Sitting suspended for a Division in the House.

On resuming-

Q258 Dr Whitehead: On changes in ECO that were announced last week as a result of the green levies, what assessment has DECC, and indeed BIS, made of the likely impact of those changes on investment in the home energy efficiency market and particularly the jobs and supply links that go with it?

Michael Fallon: These are changes that have only just been announced and do not take effect immediately. Obviously, we are going to work these changes through. Some of them require changes in primary legislation, others will have to be discussed with the industry, so it is too soon to speculate on the impact on jobs or the level of energy efficiency, but you will recall the thrust of the changes is of course to spread the scheme over a further two years and to ensure that it is much better targeted on the most vulnerable.

Q259 Dr Whitehead: Yes, a reduction in CERO by 33%; changes in the relationship with the Green Deal and ECO; concentration under CERO of work on cavity wall insulation and loft insulation as opposed to solid wall insulation, and therefore probably pretty much the disappearance of solid wall work under CERO. It appears at first sight to have a potential impact on those people who are investing in training, employment, upskilling and so on in terms of the solid wall insulation market, but maybe I am wrong in that.

Michael Fallon: I think it is too early to come to a conclusion like that. As I have said, the scheme is going to be much better targeted in future and indeed the net and the definition of the more vulnerable households is being widened, so these are changes we should welcome.

Q260 Dr Whitehead: Is it too early to tell because no impact assessment has been published of the changes in ECO after the policy has been enunciated?

Michael Fallon: These are proposals and they obviously have to be worked through and we will be discussing with the industries concerned exactly how they are going to be worked through. As I have said, some of them require changes to the legislation itself, so there is plenty of time to assess where the actual impact is likely to be.

Q261 Dr Whitehead: But is it not rather more normally the case that, when there is a policy change that perhaps has an impact on investment and the way the market might respond to those changes, an impact assessment is published at the same time as the policy change is made?

Michael Fallon: No. We assess the impact when we publish proposals to change legislation. We have announced that it is our intention to spread the scheme over another two years and to focus it on those who need it most, as I have said.

Q262 Dr Whitehead: So it does not matter?

Michael Fallon: Of course it matters. These are extremely important schemes. They involve significant commitment from the big energy companies and there are certainly jobs at stake here, so it does matter.

Q263 Dr Whitehead: I note in terms of the potential uncertainty in terms of investors, you mentioned just a little while ago you had not had a chance to look at this morning’s Climate Change Committee report on the suggestions of any changes in 2014 to the Fourth Carbon Budget. You did not happen to receive a letter of 3 October 2013 from the Chairman of the Climate Change Committee saying exactly that, did you?

Michael Fallon: I may have had a letter from him. I certainly have regular discussions with him. He came to see me about these matters; I think that may well have been in October.

Q264 Dr Whitehead: What I am slightly puzzled about is that this letter says, "I am writing to you about our emerging conclusions on the review of the Fourth Carbon Budget, for which we will provide our full advice in December" and it then goes on for nine pages to talk about what the advice is likely to be, particularly on, shall we say, the legislative legality of revising the Fourth Carbon Budget downwards in 2014, and also sets out a number of arguments that are certainly not the final arguments, as he indicates, but are clearly substantial in terms of how that conclusion is drawn. You may well, I guess, have had time to have a look at that particular letter and have drawn some tentative conclusions about what might be in the report that came out this morning, in terms of how the Department might respond should a report emerge. Would that be fair?

Michael Fallon: I am afraid I cannot recall every letter that was written to me in October. There are lots of these letters. I do recall something.

Dr Whitehead: It is a rather important letter, from the Chairman of the Climate Change Committee.

Michael Fallon: Yes, indeed. It is an important committee. I do recall something along those lines now that you mention it, but I have not had time today to look at the report that has been issued.

Q265 Dr Whitehead: I understand that point, but this letter very clearly set out what was going to be in that report and effectively signalled-I would imagine probably as a helpful signal for those people who perhaps have not had time to read the report-what might be in the report so that at least provisional conclusions could be drawn as to what that report might contain and therefore how the Department might respond to it. I personally thought that was a very helpful letter in that respect.

Michael Fallon: I will have to go back and read it, along with the report that has come out this morning, and see how accurate it was as a predictor of what was in the final report.

Chair: I think the concern there is whether there should indeed be any revision by the Government in view of the report that has come out today. I suppose, in a way, the Government’s response to this Committee’s early report on carbon budgets very conveniently does not address what was in the report of the Climate Change Committee today, so I think there is a need for urgent attention by Government.

Michael Fallon: The report is of course advice. It is important advice, but it is advice.

Q266 Mark Lazarowicz: I accept fully that I would not expect the Government or a Minister to respond this afternoon to a review that was published this morning, but you will of course be aware of the wide, strong view within the industry about the need to stick to the Carbon Budget, and we have had an email from a renewables business in my constituency just before we came in this morning to that effect.

Given the need to ensure there is not uncertainty about Government’s intentions, would you accept it is important that Government does reach a decision on this matter very quickly to avoid any build-up of uncertainty about the direction of travel for Government in relation to the Carbon Budget?

Michael Fallon: There I can agree with you. I think it is important to make a final decision on this as quickly as possible. Having only received the advice this morning, obviously it is a little too early for us to respond to it.

Q267 Mark Lazarowicz: I am not going to ask you the date, but how quickly can we expect that from you?

Michael Fallon: I cannot say, I am sorry.

Q268 Dr Whitehead: Were you able to respond or have you thought about any response indeed to the Climate Committee’s publication in November of their full analysis of EU circumstances that would lead to the conclusions that came out in December relating to the advisability or otherwise of revising the budget downwards? That was a report they published.

Michael Fallon: I am sorry, I am behind in my reading of their reports.

Q269 Dr Whitehead: You are quite seriously behind in reading their reports, aren’t you?

Michael Fallon: There are lots of reports I should be reading. Every day there are reports I should be reading.

Chair: Perhaps we better bring this session to a close as quickly as possible, but we have Mr Aldous. I am just thinking about giving you time for bedtime reading.

Q270 Peter Aldous: Thank you very much, Madam Chairman. I will just draw attention to my entry in the Register of Members’ Financial Interests. I have farming interests where there are renewable energy projects involved.

Thank you very much, Minister, for coming in front of us. I think it is recognised that investors need good information when they make investment decisions, and if they do not get that good information, they may not take the risk or invest at all or would seek a higher rate of return to cover the risk of any uncertainty. To what extent do you think investors in environmental and green energy projects have all the information they need to be able to make decisions?

Michael Fallon: That is a very hard question to answer. These are commercial decisions for investors to make and it is up to them to satisfy themselves that they have the information.

Q271 Peter Aldous: If I could just get a little bit more specific, some organisations like Carbon Tracker have placed quite a lot of emphasis on the carbon bubble, and they have expressed a concern that investors do not have the right sort of information in front of them to properly weigh up any carbon bubble effect. Is that something that you might have seen or not?

Michael Fallon: I have heard about that, but I do not think it is right for me to speculate on the amount of information that investors may or may not have in particular projects.

Q272 Peter Aldous: Just moving on, the Government recently introduced legislation that requires companies to report their greenhouse gas emissions, which certainly some investors in environmental projects would be interested in. Has there been any feedback from investors on whether that information on greenhouse gas emissions is welcome?

Michael Fallon: Not that I have seen.

Q273 Peter Aldous: The final point: is there any evidence that some investors might be reluctant to invest in low carbon and green businesses rather than fossil fuels due to the higher financial returns, because they may have a nervousness about fulfilling their fiduciary duties? Is that something the Department has come across or not?

Michael Fallon: The establishment of the Green Investment Bank is designed to deal with those areas, where it is more difficult for some projects to attract finance in the normal financial markets, and therefore the Bank can step in and provide the financing that is needed. That may well be the case in some of the more expensive and potentially riskier technologies.

Q274 Peter Aldous: Do you think that fund managers should be interpreting the fiduciary duty more widely so that the carbon bubble and the long-term need to decarbonise, for instance, are factors that are taken into account in investment decisions?

Michael Fallon: I do not think it is for me to tell fund managers how to interpret their fiduciary duty.

Q275 Peter Aldous: If I could just go back a couple of questions, to the introduction of the legislation that requires companies to report their greenhouse gas emissions and the feedback from investors, will Government, BIS, be analysing any feedback from industry on that from investors? If they are, would you be able to get that to us?

Michael Fallon: Yes. I am not aware of any feedback, as I said earlier, but if we do get significant feedback that is either very negative or very positive about it, of course we can see how we can share that with the Committee.

Peter Aldous: That would be great, thank you.

Chair: Minister, I think that brings an end to the session this afternoon. Apologies for its having been interrupted by the Division, but thank you, as always, for your generosity with your time.