Appendix -Government response
The Government welcomes the Environmental Audit Committee's
report on Green Finance.
This response has been prepared by the Department
of Energy and Climate Change (DECC) with input from Department
for Business, Innovation and Skills (BIS), HM Treasury (HMT) and
Department for Environment, Food and Rural Affairs (Defra).
In this response paper, the Committee's recommendations
are shown in bold and the paragraph references at the end of each
recommendation correspond with those in the Committee's report.
The Government's response is given beneath each recommendation,
or group of recommendations.
12. The Government needs to play a central role
in agreeing ambitious and binding international commitments on
tackling climate change, both in the EU and in the lead up to
the UNFCCC conference in Paris in 2015. Domestically, the Government
should announce immediately that following the advice from the
Committee on Climate Change there is no rationale for any review
of the Fourth Carbon Budget.
(Paragraph 5)
Response to the recommendation
Tackling climate change internationally:
The Government is committed to continuing to play
a central role within the EU and internationally to agree ambitious
and binding commitments to tackle climate change. We will continue
to push the EU to demonstrate leadership in tackling climate change
and to press countries to demonstrate strong political will as
we move towards an ambitious global climate agreement in 2015.
We have been working actively and constructively
with our European partners to achieve ambitious action within
the EU. Through the Green Growth Group of Ministers established
by the Secretary of State for Energy and Climate Change, we are
pushing for an early and ambitious outcome to the discussions
on the EU2030 climate and energy framework. In March, 13 Green
Growth Group Ministers, including the UK, France, Germany, Italy
and Spain, signed a joint statement calling for an ambitious and
cost-effective 2030 package. In particular, the statement called
for a binding domestic emissions target of at least 40% with the
possibility of using emissions credits to raise ambition; a binding
EU-level renewables target of at least 27% that must not be translated
into binding national targets; an urgently strengthened EU Emissions
Trading System; and improved energy efficiency. At the 21 March
meeting of the European Council it was agreed that a final decision
on the EU 2030 framework will be made no later than October this
year, based on the Commission's 2030 proposals.
Internationally, it is imperative that all countries
work together to reduce emissions. At the last UNFCCC Conference
of Parties (COP) in Warsaw in 2013, all countries agreed to start
or intensify their preparations for the global change agreement
in 2015. Parties will bring forward proposed mitigation commitments
for the post-2020 period well in advance of the COP in Paris in
December 2015 and by the first quarter of 2015 for those ready
to so. A draft framework for the 2015 agreement is to be ready
by the COP in Lima this year.
FOURTH CARBON BUDGET:
The Climate Change Act 2008 established the world's
first long-term legally binding national framework to help tackle
the dangers of climate change by putting in place carbon budgets.
These limit the total emissions permissible across the UK over
five year periods and provide a framework for reducing greenhouse
gas emissions by at least 80% (from the 1990 baseline), by 2050.
The Government is fully committed to meeting these targets and
is making good progress towards the 2050 target. On 4 February
2014, statistics on the 2012 UK greenhouse gas emissions confirmed
that the UK met its first carbon budget.
At the time of setting the level of the fourth carbon
budget, the Government committed to reviewing progress against
the EU emissions goal in early 2014. The scope of the fourth carbon
budget review was laid out in the statement to Parliament by the
Secretary of State for Energy and Climate Change in May 2011.
It explained that under the Climate Change Act, emissions reductions
by the UK's industrial and power sectors are determined by the
UK's share of the EU Emissions Trading System (EU ETS) cap. This
protects UK industrial and power sectors from exceeding EU requirements.
However, if the EU ETS cap is insufficiently ambitious, this could
mean placing disproportionate strain on other sectors outside
the EU ETS, such as transport. The Government therefore committed
to review progress against the EU emissions goal in early 2014
to ensure that our climate targets for the industrial and power
sectors are in line with the EU's.
While it would be premature to comment on the outcome
of the review, the Government recognises the value of an early
decision and is seeking to conduct the review as quickly as possible,
in line with the requirements of the Climate Change Act, recognising
the importance of fully considering the evidence, including advice
from the Committee on Climate Change.
13. The Government should vote in favour of binding
national renewables targets at the EU Council. (Paragraph 8)
Response to the recommendation
The Government remains fully committed to the deployment
of renewable energy and its vital role as part of a diverse low
carbon energy mix, including nuclear, a switch from coal to gas,
and when the technology is ready, carbon capture and storage.
Over £34 billion of private sector investment in large scale
renewable electricity has been announced since 2010, which could
support up to 37,000 jobs.
The Government can accept the Commission's proposed
EU level target for renewables but will continue to oppose an
EU 2030 renewable energy target that is binding at national level.
Such a target would constrain the breadth of low carbon technology
options from being pursued, increase risk, diminish the role of
market selection, and prevent Member States from choosing the
most cost effective pathway to meet their greenhouse gas reduction
targets.
The Commission's own analysis is clear that an ambitious
emission reduction target will stimulate massive investment in
renewable energy across the EU. The Government will continue to
push for an ambitious EU target for 2030 to reduce greenhouse
gases by at least 40%. This will catalyse renewable energy deployment
without the inflexibility, costs and risks of national binding
technology specific targets.
14. The Government should make the changes recommended
by the Committee on Climate Change to bring greater longer-term
certainty for investment—an early energy-intensity target
for electricity generation and an extension of the Levy Control
Framework and indicative funding levels to 2030. The Government
should reiterate its commitment to the already planned escalation
of the carbon price floor and use the implementation of the Electricity
Market Reform to make a clear commitment to avoiding further unplanned
regulatory and subsidy changes for low carbon energy. (Paragraph
25)
Response to the recommendation
On the carbon intensity target:
The Government has introduced powers in the Energy
Act 2013, that enable a 2030 binding decarbonisation target range
to be set for the electricity sector. It is important to make
a decision on whether to set this target range in 2016, once we
have decided the level of economy-wide emissions reductions that
will have to be achieved by 2030 under the 5th Carbon
Budget. This means that a target range would not be set in isolation
but in the context of considering the pathway of the whole economy
towards our 2050 target and making sure we do that in a way that
minimises costs to the economy and to consumers.
ON THE LCF AND INDICATIVE FUNDING LEVELS TO 2030:
In 2012, the Levy Control Framework was extended
to 2020/21 specifically to inform decisions on Electricity Market
Reform and to provide investors with greater certainty on future
levels of support - while continuing to protect consumers' bills.
Decisions on support levels for new low-carbon electricity generation
beyond the current LCF settlement period will be taken in the
next Parliament.
ON THE CARBON PRICE FLOOR COMMITMENT:
The Government remains fully committed to its programme
to tackle climate change, and to carbon pricing as a key instrument
to drive investment in low carbon generation. The 2014 Budget
announced that Carbon Price Support rates will be capped at £18
from 2016/17 to 2020, in the light of a lower than expected European
carbon price, and concerns about UK industry remaining competitive.
The Government will review the trajectory of the Carbon Price
Floor once the direction of travel on reform of the EU Emissions
Trading System is better known.
PROVIDING POLICY CERTAINTY TO INVESTORS:
Electricity Market Reform (EMR) has set out incentives
for investment for low carbon technologies through a Contract
for Difference (CfD). The CfD sets out guaranteed prices—'strike
prices' for different technologies, including low carbon, which
will increase certainty over investment for suppliers.
CfDs provide the most efficient long term support
for all forms of low carbon generation - including nuclear, renewables
and Carbon Capture & Storage. They give greater certainty
and stability of revenues by removing exposure to volatile wholesale
prices, and protect consumers from paying for support when electricity
prices are high.
The CfD will be a private law bilateral contract
between the CfD Counterparty and an individual low carbon generator.
The CFD counterparty (Low Carbon Contracts Company Ltd.), although
owned by government, will operate as a private company and its
functions will be clearly set out to ensure transparency of its
actions. Government will not be a signatory to the contract and
there will be one contract per generating asset. CfDs will provide
the associated rights and protections in a familiar framework
for investors and developers. It will provide clear routes for
resolution of disputes and transparent, contract-based benefits,
obligations and rights.
The Government has laid 14 signed contracts for the
eight projects which were award an Investment Contract (an early
form of Contracts for Difference, through the FID Enabling for
Renewables process) before both Houses of Parliament on 4 June
2014[1].
15. The Financial Policy Committee of the Bank
of England should regularly consult with the Committee on Climate
Change to help it monitor the risks to financial stability associated
with a carbon bubble. (Paragraph 31)
Response to the recommendation
This recommendation is a matter for the Financial
Policy Committee of the Bank of England.
16. The Government should work with companies
to ensure that reporting requirements provide investors with all
of the information they require to assess carbon risk, and develop
the standard reporting requirements further. (Paragraph 35)
Response to the recommendation
The Government decided to introduce regulations requiring
quoted companies to disclose their greenhouse gas emissions after
a significant amount of engagement with the business and investment
community and civil society organisations over the last few years.
The consultation asked whether to require the reporting of indirect
emissions that occur beyond the company's direct operations. That
would include, for example, a bank reporting on emissions from
companies in which it had invested through shares or loans. It
was clear from the responses to that consultation that such mandatory
reporting could create a significant burden for some businesses.
Given the complexity of some commercial relationships, there would
be substantial logistical difficulties in gathering the necessary
information in some cases. We needed to weigh, therefore, the
benefits of mandatory reporting against the additional burden
it would impose on companies and decided on balance not to make
this requirement mandatory.
The Government does, nevertheless, continue to encourage
voluntary reporting of significant indirect emissions by all large
companies. This encouragement includes the publication of guidance
for companies on how to measure and report their emissions. We
have also held discussions with businesses, including the investment
community, to highlight the benefits of reporting. Some leading
companies, including banks and others in the financial sector,
will decide to measure and report their indirect emissions as
a way of showing leadership in this area. That is something the
Government continues to welcome on a voluntary basis.
The reporting of fossil fuel reserves attracted little
support during the extensive consultation on mandatory reporting.
Our final approach and guidance was based on internationally accepted
methodologies of emissions reporting.
The Companies Act 2006 already require companies
to disclose the main risks and uncertainties facing companies.
Research carried out by HSBC and Carbon Tracker on unburnable
carbon reserves shows that there is information already available
on the level of fossil fuel reserves, including from oil and gas
companies which already disclose information on proven reserves.
In that context, we do not see a need for Government to legislate
further in this area.
17. The Government must make an early and clear
statement about the Green Investment Bank's long-term future,
beyond the 2015-16 horizon of its Spending Review funding settlement.
The Government should declare in Budget 2014, on the basis of
the flat projections for Government debt in the last Autumn Statement
remaining valid, that the Bank will be permitted to borrow in
2015-16. (Paragraph 50)
Response to the recommendation
The Green Investment Bank (GIB) has been set up to
be an enduring institution and the Government remains fully
committed to ensuring it has the funding it needs to
operate effectively on an ongoing basis. We continue to work closely
with GIB about their funding requirements. GIB has been allocated
£3.8 billion to March 2016—all the funding it requires
for that period. GIB has been given the option of borrowing up
to £500m of its £800m provision for the year 2015-16
from HM Treasury's National Loans Fund (NLF) should it choose
to do so. In the longer term, we continue to keep under review
the position on GIB raising finance from private capital markets.
As the Committee's report recognises, GIB's key concern is to
operate in ways that make best use of its capital to mobilise
additional private sector finance into relevant green sectors.
This may involve forming investment clubs or moving towards a
more fund management style approach to mobilising project finance.
18. The Government should make the Green Deal
simpler and more attractive to households in order to achieve
the level of scale-up required. Steps could include significantly
reducing the assessment fee and the interest rate on the Green
Deal loan, to be more in line with the terms of the Help to Buy
scheme equity loans which start at 1.75%. (Paragraph 54)
Response to the recommendation
We are continuously working to implement changes
to make things simpler for consumers and to reduce the burdens
on market participants.
The Government does not set the price of Green Deal
Assessments; it is for the market (Authorised Green Deal Assessor
Organisations) to determine the price. Households are encouraged
to shop around when selecting an Assessor Organisation to carry
out an assessment on their property. A significant proportion
of Green Deal assessments (85%) have been undertaken at no cost
to the customers because, for instance, fees have been waived
by the assessment company or met by landlords. In addition, under
the Green Deal Communities programme the Government is supporting
24 local authority led street by street projects, with a budget
of £88 million in total. Within this, households are able
to get a full rebate on the cost of a Green Deal Assessment if
they go on to install Green Deal measures. Further, £1.36
million of the £88 million has been allocated specifically
to support free or subsidised Green Deal Assessments in addition
to those that lead to successful installations to help local authorities
kick start their street by street projects. Under the newly announced
Green Deal Home Improvement Fund, householders can also receive
a rebate worth up to £100 off what they have paid towards
a Green Deal Assessment if they install energy saving improvements
under the GDHIF scheme.
The Government rejects the recommendation that a
subsidised interest rate is required for Green Deal. The Green
Deal has been established to be a long-term, market based finance
proposition, developed by investors on commercial terms. This
has been established through The Green Deal Finance Company which
is able to offer a competitive interest rate of 6.96% (plus fixed
charges). The Government is taking action to ensure that, as the
Green Deal market grows, a wide range of households can access
this finance quickly and easily.
19. The Government has spent a long time talking
about extending the remit of the Green Investment Bank to community
energy without being able to show any progress. The Government
should prepare and submit the relevant information to the Commission
to secure State Aid approval for these additional areas of activity
for the Green Investment Bank as quickly as possible and should
work with the Green Investment Bank to develop effective aggregation
methods to facilitate smaller scale lending. (Paragraph 56)
Response to the recommendation
In mid-April, the UK Government submitted a formal
state aid approval request to the Commission proposing that two
further sectors be included within the scope of the Green Investment
Bank (GIB). This expansion of GIB's remit should greatly increase
the scope for GIB to participate in financing community owned
energy projects. It remains the case that GIB may only offer finance
on fully commercial terms and must continue to apply its rigorous
investment criteria in deciding whether or not to commit finance
to a project.
20. The Government should work with the European
Commission to ensure its proposals to reduce the threshold for
small-scale feed-in tariffs are not carried through. The first
priorities of the new Community Energy Unit in DECC should be
to seek early State Aid approval for the Green Investment Bank
to invest in community energy, and to actively engage with other
departments—including DCLG and the Treasury—to ensure
that all local authorities have the tools and resources to play
a full part in making such schemes a widespread and successful
part of the UK energy mix. It should prioritise initiatives to
allow community energy producers to directly supply energy at
lower prices to local communities, and work with Ofgem to make
it mandatory for District Network Operators to work with License
lite and set fixed fees for this. (Paragraph 62)
Response to Recommendation
Regarding the revised European Commission's
Environmental & Energy Aid Guidelines:
The revised Environmental & Energy Aid Guidelines
(EEAG) were adopted on 9 April and contain a number of changes
from the previous guidelines, including significant changes to
how support for renewable electricity generation can be provided.
As part of the UK response to the Commission's consultation on
the guidelines we highlighted the need to avoid disruption of
renewable investment pipelines. We welcome the Commission's confirmation
that the new guidelines do not affect schemes already in place
that were approved under the existing rules. Therefore, the current
Renewables Obligation and the UK's small-scale Feed-in-Tariff
schemes are not required to be brought into line with the new
guidelines for as long as they remain covered by their existing
state aid approvals.
ON INCREASING THE MAXIMUM CAPACITY CEILING FOR COMMUNITY
PROJECTS UNDER THE FEED IN TARIFFS:
The Government is committed to taking action to encourage
deployment of community energy projects. As set out in the Community
Energy Strategy, we are currently consulting on the possibility
of increasing the FITs ceiling for community projects from 5MW
to 10MW. It is likely that such a change to the FITs scheme would
require state aid approval, triggering the need to bring the FITs
scheme into line with the EEAG. We will consider the trade-offs
for the FITs scheme as a whole in order to inform our final policy
decision on this matter. Any decision to proceed with a state
aid case to enable us to implement the increased capacity ceiling
for community projects will be dependent in part upon us receiving
sufficient new and robust economic evidence from this consultation.
ON DECCS COMMUNITY ENERGY UNIT:
DECCs new Community Energy Unit was established on
1 April 2014, fulfilling a commitment in the Community Energy
Strategy. The Unit will act as the Department's policy lead on
community energy and to co-ordinate DECC and other Government
Department's work on taking forward implementation of the Community
Energy Strategy.
The Community Energy Strategy recognised the importance
of local authority support and partnerships to the success of
community energy projects in their area. The Secretary of State
for Energy and Climate Change and the Local Government Association
has written to local authority leaders in England[2].
Further details on a national Local Government and Communities
Conference in the autumn will be announced shortly that will help
build the practical understanding of how local authorities and
communities can work together to deliver community energy projects.
ON DIRECT SUPPLY AND LICENCE LITE:
DECC is working closely with Ofgem to monitor and
address issues surrounding Licence Lite and the Secretary of State
will be hosting a Roundtable on 12 May with Ofgem and other stakeholders
to address the complex issues surrounding supply for community
energy groups. A Working Group has also been set up to address
the issues associated with connecting to the grid for community
energy groups. The Secretary of State will receive a report by
the end of July on the issues of grid connection and Licence Lite.
As noted in the Community Energy Strategy, Ofgem
will be reviewing and updating the Licence Lite guidelines over
the course of 2014, taking into account the Greater London Authority's
successful application. However, the review is for housekeeping
and clarification purposes and is not expected to change the fundamental
principles of how Licence Lite operates.
21. We urge the Government to look positively
at ways of overcoming the problems relating [to redirecting Quantitative
Easing and securing the international support needed to introduce
a financial transaction tax]. (Paragraph 69)
Response to Recommendation
Quantitative Easing:
Quantitative easing is a matter for the Bank of England
and the Monetary Policy Committee with its primary role of pursuing
price stability. We do not believe that it should be given conflicting
policy objectives or asked to target particular sectors of the
economy.
FINANCIAL TRANSACTION TAX:
The UK will not be joining the enhanced cooperation
on a Financial Transaction Tax (FTT). We are not, however, looking
to stop others going ahead with a FTT if they wish, and if our
concerns are met we will continue to work closely with Council
colleagues, contributing to discussions as provided for in the
Treaty. The Government would not hypothecate revenues from any
tax towards financing green investment. This allows us to allocate
resources most efficiently across the economy.
22. The Government should publish a single overall
strategy to refocus and direct all relevant policies towards this
essential task of mobilising action on reducing carbon emissions,
as it started to do in Enabling the Transition to a Green Economy.
It should re-visit that document to evaluate progress and identify
areas for improvement, as well as extending it further. It should
monitor and report on overall progress across the full range of
green energy and infrastructure investment, in the same way as
it reports annually on the National Infrastructure Plan. Working
to a single strategy would create greater certainty and a more
favourable investment outlook by bringing together and aligning:
- The UK's position in international negotiations
on emissions reduction and climate change;
- Action needed to deliver our carbon budget
commitments and Climate Change Act obligations;
- Industrial Strategies;
- The National Infrastructure Plan;
- The Infrastructure Guarantee programme;
- The Green Investment Bank's role and the scope
of the projects it supports;
- Opportunities to take advantage of and direct
EU funding towards green infrastructure;
- Green-proofing Government grants, including
the Regional Growth Fund and LEPs;
- Community energy;
- Funding for adaption to climate change. (Paragraph
73)
Response to the recommendation
The Government prioritises unlocking investment in
the UK's energy infrastructure and playing a leading role in efforts
to secure international action to reduce greenhouse gas emissions
and tackle climate change. As stated in Enabling the transition
to a Green Economy, the Government's Carbon Plan sets out
our proposals for achieving the emissions reductions to which
we have committed in the first four carbon budgets, and the Committee
on Climate Change's annual progress report monitors the UK's progress
towards meeting the carbon budgets and recommends actions for
keeping on track. The Government's Annual Energy Statement also
sets out how the Government is delivering on its energy priorities
and making good progress to implement ambitious energy and climate
change policies.
The Government welcomes the Committee's recognition
that the Green Investment Bank, and other initiatives, are already
making good progress on promoting green investment. Since 2010,
investment worth more than £45 billion has been secured in
energy infrastructure alone, with the majority of this investment
in renewable technologies.
In addition to the reports mentioned above, the Government
will shortly publish a full Energy Investment report. In advance
of that, on 23 April, the Government published a summary of the
investment already secured in energy from 2010 onwards and the
significant progress made against the energy investment challenge[3].
We remain focused on bringing forward investment in clean energy
infrastructure to ensure security of supply, reduce carbon emissions
and maximise energy efficiency.
1 The Investment Contracts have been published here:
https://www.gov.uk/government/publications/final-investment-decision-fid-enabling-for-renewables-investment-contracts
Back
2
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/304795/20140127_Edward_Davey_
Mike_Jones_letter_to_LAs_on_CES.pdf Back
3
https://www.gov.uk/government/publications/energy-investment-report-april-2014 Back
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