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Climate Change Levy

3.12 p.m.

Baroness Hooper asked Her Majesty's Government:

Lord McIntosh of Haringey: My Lords, the Government have always made clear that aspects of the climate change levy package are subject to state aid clearance. The most recent draft of the EU guidelines for environmental measures was published in October. I am glad to say that it is encouraging for the UK applications. The Government are continuing to work closely with the Commission to ensure a timely approval of its applications.

Baroness Hooper: My Lords, I start by declaring an interest as an officer of the All-Party Chemical Industry Group. I thank the Minister for his reply. Perhaps I may press him further on the timing. Given that the levy is due to be imposed in April of next year and that the Government's package of rebates and exemptions was first announced in November of last year--exactly one year ago--when do the Government expect industry's uncertainties to be

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clarified by a response from the European Commission? What are the Government doing about pressing for that?

Lord McIntosh of Haringey: My Lords, the majority of the state aid issues have already been resolved. The Commission's new draft guidelines give positive indications about the resolution of the remaining issues. We are in discussion with the Commission about the outstanding matters. We are confident that we shall have a workable package to agree by the start of the year. That will be in good time for the start of the levy in April.

Lord Ezra: My Lord, in negotiations with the intensive energy-using industries, have the Government taken into account the great efforts they have made over the years to improve their use of energy, because it plays such a large part in their costs? I know about that from my own experience when I dealt with them in the now regrettably distant days when coal was king.

Lord McIntosh of Haringey: My Lords, we are aware of the efforts that have been made by industry--particularly by energy-intensive industries--to reduce their energy consumption for good reasons of self interest. But we have a target under the Kyoto agreements to reduce carbon use by 5 million tonnes by 2010 on the 1990 figures, of which 2.5 million tonnes will come from the levy. That is building on the savings which have already been made by industry, for which we are grateful.

Baroness Gardner of Parkes: My Lords, how will the costs and the burden on British industry compare with other countries in the European Community and with the United States?

Lord McIntosh of Haringey: My Lords, all industrialised countries have comparable targets to achieve under the Kyoto agreements. They achieve their results in different ways, so there cannot be a single answer to give to the noble Baroness. But certainly they need to achieve the same result in some way or another.

Lord Lea of Crondall: My Lords, does my noble friend agree that the real logic of protecting national competitiveness in the energy field in the context of the European Union--which is the thrust of the Question from the noble Baroness, Lady Hooper--is either to harmonise the energy tax regime in Europe, or, at the minimum, to ensure a level playing field? That takes us into the area not just of energy in the industrial sense but also road transport--a matter we have been thinking about in recent weeks. Does he also agree that this will become much more apparent as we implement Kyoto and the measures which we expect to emerge from the Hague?

Lord McIntosh of Haringey: My Lords, it is better to think of harmonising the Kyoto objectives rather than

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the actual tax regimes. It is better for individual countries to seek to achieve their Kyoto targets in their own way. In answering the Question, we have been talking about the 40 per cent of energy use which is incurred by industry and the public sector. My noble friend Lord Lea is right, there is also the 20 per cent of energy used by transport industries. There are targets for that too. There are plans to cover the transport industries.

Lord Campbell of Croy: My Lord, are the Government certain that the concession of relieving firms from paying national insurance contributions, uneven as it would be in its effect on different parts of industry, will be acceptable to the Commission?

Lord McIntosh of Haringey: My Lords, yes, as we understand it. As the noble Lord, Lord Campbell, rightly reminds the House, the climate change levy package is intended to be neutral so far as concerns the revenue. It will largely be balanced by a 0.3 per cent decrease in national insurance contributions. But there is to be an additional £150 million--£50 million for an energy efficiency fund to go back to industry and £100 million for enhanced capital allowances. From the favourable negotiations which are proceeding, our understanding is that that part of the package is acceptable, although that is not specifically part of the state aid requirement.

Lord Peston: My Lords, will my noble friend remind the House that there has been an enormous improvement in the use of energy by industry in the advanced industrialised world, especially in our own country, over the past 30 years? That has been driven overwhelmingly by the high cost of energy. If one wants an improvement of energy efficiency and the resulting improvement in the environment, would it not be foolhardy to do anything that lowers the real price of energy, sad though that may be for those firms which use a lot of energy? The whole point of energy efficiency is to hammer the firms that use a lot of it, bad though that may seem.

Lord McIntosh of Haringey: My Lords, the difficulty we have seen in recent months has not been simply an increase in the price of energy, but the great volatility in energy prices. If oil prices increase from around 10 dollars to over 30 dollars a barrel in the course of 18 months, it is the volatility that is damaging. In general, that does not mean that low energy prices below the OPEC guidelines would be welcome in energy conservation terms.

Lord Waddington: My Lords, what does the Minister say about the report in The Times today that, in spite of all that has been said in Kyoto and everywhere else, there has been no global warming since 1940?

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Lord McIntosh of Haringey: My Lords, this scientific dispute has carried on for a number of years. There are still those who say that there has been no global warming. There are other equally eminent, and sometimes more eminent, scientists who point not to the small changes in temperature worldwide but to issues like the melting of ice caps.

The Lord Bishop of Hereford: My Lords, can the Minister say whether it would be possible for energy intensive industries to have priority access to energy derived from non-fossil fuel sources as such energy becomes increasingly available? Would not such access help the international competitiveness of such industries?

Lord McIntosh of Haringey: My Lords, the Government are keen to encourage the use of new renewables by industry and by domestic customers. But that is one of the issues that has to go to the European Commission for state aid approval. It is the exemption for renewable energy that is being resolved.

Lord Tomlinson: My Lords, is it not somewhat unreasonable that proposals that were made in November 1999 by my right honourable friend the Chancellor of the Exchequer are still under consideration in Brussels? The package is extremely complex, involving capital allowances for energy efficient investment, but industry is expected to be able to respond, possibly between February of next year and the beginning of the following tax year. Is there not an imbalance between the time taken in Brussels and the time left to British industry to take benefit from the schemes?

Lord McIntosh of Haringey: My Lords, my noble friend knows more of the detail of Brussels negotiations than I do. Those parts of British industry that will be affected by the climate change levy are well aware of the issues that have been raised. The answers that I have been able to give about the good progress towards a conclusion of the negotiations should enable industry to make the necessary plans. But I have to say again that these issues are complicated. We need clearance for the agreements which allow discounts for energy intensive industries, for Northern Ireland Gas, for renewable energy, for public transport, for the special levy package for horticulture and for the enhanced capital allowances for energy saving investment. These things cannot be done overnight.

Lord Carver: My Lords, would it not be a good idea if the House looked again at the report produced some years ago by the Science and Technology Committee, which I chaired, on the greenhouse effect?

Lord McIntosh of Haringey: My Lords, I am sure that those responsible for the committee business of the House will look carefully at the noble and gallant Lord's suggestion.

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