Draft Environmental Permitting (England and Wales) (amendment) Regulations 2015
The Committee consisted of the following Members:
† Aldous, Peter (Waveney) (Con)
Ali, Rushanara (Bethnal Green and Bow) (Lab)
† Cunningham, Mr Jim (Coventry South) (Lab)
† Ellis, Michael (Northampton North) (Con)
† Gardiner, Barry (Brent North) (Lab)
† Glass, Pat (North West Durham) (Lab)
† Herbert, Nick (Arundel and South Downs) (Con)
† McInnes, Liz (Heywood and Middleton) (Lab)
† Offord, Dr Matthew (Hendon) (Con)
Paisley, Ian (North Antrim) (DUP)
† Penrose, John (Lord Commissioner of Her Majesty's Treasury)
† Phillipson, Bridget (Houghton and Sunderland South) (Lab)
† Rogerson, Dan (Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs)
† Wheeler, Heather (South Derbyshire) (Con)
† White, Chris (Warwick and Leamington) (Con)
† Whittaker, Craig (Calder Valley) (Con)
† Williams, Roger (Brecon and Radnorshire) (LD)
Liam Laurence Smyth, Committee Clerk
† attended the Committee
Sixth Delegated Legislation Committee
Tuesday 3 March 2015
[Mr Adrian Sanders in the Chair]
Draft Environmental Permitting (England and Wales) (Amendment) Regulations 2015
8.55 am
The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Dan Rogerson): I beg to move,
That the Committee has considered the draft Environmental Permitting (England and Wales) (Amendment) Regulations 2015.
It is a pleasure to serve under your chairmanship for the first time, Mr Sanders. The energy efficiency directive updates the European Union’s legal framework for energy efficiency, with targets of saving 20% of the EU’s primary energy consumption by 2020 and making further energy efficiency improvements after 2020. The directive establishes a common framework of measures for the promotion of energy efficiency within the EU and lays down rules to remove barriers in the energy market and overcome market failures that impede efficiency.
My Department has responsibility for the aspects of the directive that aim to increase the uptake of cost-beneficial cogeneration—usually known as combined heat and power, or CHP—and waste heat recovery systems in the United Kingdom. The regulations cover England and Wales, and transpose article 14(5) to 14(9) of the energy efficiency directive.
The regulations require that operators of new or substantially refurbished combustion installations of over 20 MW in size carry out a cost-benefit analysis and therefore consider whether the installation of combined heat and power or waste heat recovery systems, and the use of waste heat, would be cost-beneficial, with the aim of increasing energy efficiency; where cogeneration or waste heat recovery and use options are found to be cost-beneficial, the installation of such systems will be a requirement of their environmental permit. By installing such systems, operators will achieve cost savings; there will also be social benefits from reduced carbon emissions and improved security of energy supply. The regulations are consistent with our aims of protecting the environment for future generations, making our economy more environmentally sustainable and improving our quality of life and well-being.
The choice to transpose the requirement for a cost-benefit analysis by amending the existing environmental permitting regime has clear benefits for operators and regulators alike. Environmental permitting is an established process for regulating the development, operation and refurbishment of industrial installations in England and Wales. Nearly all of the installations subject to the requirements of article 14(5) of the directive are already subject to the Environmental Permitting (England and Wales) Regulations 2010, as amended. Use of the existing system enables implementation of the requirements of the articles in a manner that limits burdens on operators and regulators.
My Department conducted a public consultation exercise between February and April last year. There were 20 responses, all of which supported the use of the 2010 regulations to transpose the requirements of the directive. Respondents raised a number of concerns regarding the suitability and practicality of the thresholds applied in the instrument. Those concerns have been taken on board, and changes have been made to the regulations to reflect them.
An impact assessment on the implementation of the amending regulations has been prepared. It showed an estimated net cost of £12.4 million over the 10-year appraisal period. The costs to regulators are included in that figure; those costs may be recouped through environmental permitting fees and charges. There will clearly be benefits from improving energy efficiency for both operators and society. The impact assessment was not able to quantify those benefits overall as it is unclear how many operators will introduce changes. However, it included a number of case studies that suggest, for example, that if CHP were installed instead of an industrial boiler, depending on the size and configuration of the boiler the operator could see annual savings of £1 million to £7 million, paying back their up-front investment within six years.
The regulations will help to ensure that operators install energy-efficient systems and reduce carbon emissions where that is cost-beneficial. I commend them to the Committee.
8.59 am
Barry Gardiner (Brent North) (Lab): It is a pleasure to serve under your chairmanship, Mr Sanders.
I have a few questions for the Minister. What will be the projected annual savings in energy usage resulting from the change? What are the projected resulting annual emissions reductions? How will the regulations contribute to reducing our dependency on gas for heating? What are the Government’s targets for industrial energy efficiency improvements and how will the change in the regulations contribute towards those targets? How will the Government incentivise this kind of energy efficiency improvement for small and medium-sized businesses, which are not covered by the directive?
Perhaps the Minister will explain why it is thought that section 2 of and schedule 1 to the Pollution Prevention and Control Act 1999 authorise new schedule 8A to be inserted into the 2010 regulations, given that that schedule is intended to transpose provisions in the directive that are about the promotion of energy efficiency rather than the control of pollution and that that directive has not been designated by order as a relevant directive? The Department submit that the provisions of the 1999 Act may be used as the enabling power in these circumstances. It asserts that article 14(5) to (9) of the energy efficiency directive provides for the recovery and use of waste heat from electricity power installations and other installations that could otherwise cause pollution. This then is contingent—the word “could” is used—and therefore it is only applicable in situations where pollution is caused.
The Joint Committee on Statutory Instruments pointed out that the directive provides
“not for the recovery and use of waste heat, but instead requires Member States to ensure that a cost benefit analysis is carried out to assess the installation of cogeneration or the utilisation of waste heat from energy producing installations”.
To deal with the problem of pollution by simply saying, “Let’s do a cost-benefit analysis of the waste heat that is being produced,” does not tackle the problem of pollution in any way and it therefore seems anomalous that these regulations are being used as the vehicle to do this.
I understand that paragraph 3 of a memorandum from the Department to the Joint Committee said that
“an order designating the Energy Efficiency Directive under paragraph 20(2)(c) of Schedule 1 to the 1999 Act will be made and will come into force before the draft Regulations are made.”
Can the Minister tell us whether that has already happened?
The Minister made reference to the impact assessment. It is strange that, when looking at the costs in the impact assessment, a very different methodology is used from that used when looking at the benefits. On the costs, it is made clear that it is uncertain how many operators would have conducted the cost-benefit analysis. Yet the costs are quantified. The reason given for not quantifying the benefits is that it is uncertain how many operators would have conducted the analysis. If it is uncertain for the benefits and it cannot be calculated, why is it possible to calculate costs? This seems rather cock-eyed logic.
The impact assessment says that no account has been taken of the benefits to small businesses. It would have been quite easy to calculate the benefits that might accrue to small businesses that were involved in the cost-benefit analysis being carried out. It would have been possible to conduct an analysis into the benefits of this directive for other supplier businesses through any impact on making somebody choose a CHP. The supplier businesses would benefit through that. I think this has been a case of, “Let’s load up the costs, but let’s not go into any detail in analysing the benefits.” For that reason, the Minister should have sent the impact assessment back to his officials and asked for much better data on which to take this decision.
It is a shame that we are expected to make decisions on the basis of such shoddy impact assessments. The Minister, in his own remarks, referred to benefits of £1 million to £6 million accruing to people when they conduct this process, but that is not there in the impact assessment that we have been given.
With those questions and provisos, I would be happy to see this SI passed, but I hope that the Minister will provide enlightenment on the initial questions about quantum and targets and on the secondary issues about the way in which this falls under the appropriate regulations, given that they are to deal with waste and pollution rather than cost-benefit analyses, and that he will make reference to the impact assessments.
9.5 am
Dan Rogerson: I thank the hon. Gentleman for his contribution to the debate and his attention to these matters, as always. On the impact assessment, I understand the hon. Gentleman’s concerns that, given the nature of this measure, there are drivers other than the measure that hon. Members may or may not approve as to why businesses might take up the potential of this technology in any case. The hon. Gentleman highlights that that could affect the cost as well as the benefits, if I am following his argument, and that the impact assessment may be said to be more specific on the costs than on the benefits.
The hon. Gentleman and I—and I hope all members of the Committee—seem to share the intention that this measure should be transposed and that we should have this as a back-stop to ensure that, at the very least, companies’ attention is drawn to the potential savings. One of the drawbacks is that, while the technology might be there and the savings might be there to be had, not all people commissioning new technology might be aware of the benefits. Therefore, this measure will seek to press them to consider that, and everyone involved in the supply chain will need to do so.
I would hate to ascribe motives to the hon. Gentleman, but he seems to be saying that the Government are keen to show the costs rather than the benefits and that we are therefore against doing something or that we are setting these measures in a negative light, which is certainly not the case. We are debating them; the Government are implementing and taking them forward.
Barry Gardiner: I am not imputing any ill motive to the Government—clearly, they want this measure passed—but the Minister has to accept that, when the impact assessment says that the cost will be £11.8 million, £12.6 million or whatever, the Federation of Small Businesses and all other small business organisations will say, “Look, the Government have admitted that there is an increased burden of regulation on business.” If the positive side is not shown properly, there is always a false understanding of what the impact of regulations will be. Given that the justification for not providing figures for the benefits is exactly the same in application to the costs, I cannot see the justification for putting figures to the costs but not the benefits. The impact assessment simply says that they are not clear and that it is
“Uncertain how many operators would have conducted the analysis anyway.”
It is absolutely right that that is not clear, so we cannot be sure whether that £11.8 million, plus £3.8 million of admin costs, will be an additional burden on businesses at all.
Dan Rogerson: The difference between the potential costs and benefits is that the costs are applicable in carrying out the cost-benefit analysis, no matter what benefit is seen to be possible as a result. The benefits come from installing the technology under these regulations and, therefore, accruing the savings over time. The costs will come whether or not a business makes the assessment that it is cost-beneficial. I know that the hon. Gentleman understands that the regulations set out the need for a cost-benefit analysis, and if the cost-benefit is proved, people will go ahead and install the technology. There is a slight difference between the two.
Barry Gardiner: But it is not an additional cost of the regulation.
Dan Rogerson: So there is greater uncertainty about how many businesses will then go on to find a benefit. I understand the hon. Gentleman’s point, but there is a difference between the costs and benefits. There is also the issue of the regulator’s costs, which I have set out.
The hon. Gentleman also asked why the Government are choosing to use the permitting regulations for pollution to implement the directive. As I set out earlier, in our consultation with those who will be required to operate the regulations, it became clear that there was an understanding of the environmental permitting regulations within which businesses and public sector organisations are used to working. Adding another element to them is therefore better than introducing a completely new regime, so we took that approach and it met with approval during the consultation.
It remains for me to sum up the two major issues that the hon. Gentleman spoke about: the impact assessment and his concern that we should at all times strive to be accurate in the information and the message that we give to people outside the House about why Government are taking these steps.
The other determining factor is the Government’s determination not to gold-plate such regulation. I can remember that when the Labour Government were in
office they were just as keen as this Government to show that they were not seeking to add extra restrictions on business over and above what was agreed quite properly at European level. We have therefore sought to take that approach as well and to act efficiently and in a low-impact way in terms of cost, while still delivering the energy efficiency outcomes that we want.The hon. Gentleman raised a number of other specific points that, with the Committee’s permission, I shall follow up in writing. Obviously, I can make sure that other members of the Committee have access to that information in the usual way. With that, I thank the Committee for the way in which it has considered these regulations. I am happy to say that the Committee has considered them and that we move to their implementation.