Select Committee on Environment, Transport and Regional Affairs Minutes of Evidence

Examination of Witnesses (Questions 958 - 979)




  958. Ministers, can I welcome you to the Committee and apologise that we are running late. Could I ask you to identify yourselves for the record please?

  (Ms Hewitt) Thank you very much, Chairman. I am Patricia Hewitt. I am the Minister for Small Business and E-commerce in the Department of Trade and Industry. I also have responsibility for environmental matters within the DTI. Could I introduce Alistair Keddie who is the Head of the Environment Directorate at the DTI.
  (Mr Timms) I am Stephen Timms, Financial Secretary at the Treasury with responsibility for environmental tax matters. I am joined by Jon Anderson who is responsible for the Landfill Tax at Customs & Excise.

  959. Do either of you want to make an opening statement or are you happy to go straight to questions?
  (Mr Timms) We are happy to go straight to questions.

Mr Blunt

  960. Mr Timms, the Treasury said in your submission to us that "The Government believes that taxation can be a useful tool in promoting sustainable waste management". How will the Government support the aims of the Waste Strategy through taxation?
  (Mr Timms) In a number of ways. There is a taxation aspect to this but of course there is a public spending aspect as well. The announcements made in the Spending Review in the summer contribute directly to achieving the goals of the Waste Strategy. We are looking currently at the landfill tax credit scheme because we think that while landfill tax itself undoubtedly contributes to the goal of reducing the proportion of waste going to landfill, we think that the credit scheme could make a greater contribution than it is doing currently to achieving the objectives of the Waste Strategy on sustainable waste management, and so we announced in the pre-Budget Report a couple of weeks ago that we will, between now and the Budget, review the way that the credit scheme works and see whether there are ways in which we can ensure that resources contribute more directly to the targets in the Waste Strategy. There is a number of other tax matters that I could draw on if you wanted me to look at that.

  961. I am slightly concerned. Your focus on the landfill tax credit scheme, however worthy that is, is in a sense focusing on the trees rather than the wood. For example, we have taken evidence from Peter Jones of Biffa who advocates the creation of a "Green Tax Commission" and tried to look at all these incentives and disincentives before public expenditure tax from a position of fiscal neutrality, but on the Waste Strategy in your evidence to us there is very little on exactly how you are going to achieve the environmental benefits that could be driven out through taxation of public expenditure. It is all rather vague. Why, for example, have you discarded the idea of introducing a tax on virgin materials and packaging?
  (Mr Timms) The objectives and the targets in the Waste Strategy have been clearly set out. Those are the Government's aims in this area. We have put in place and are putting in place the mechanisms to achieve those targets through spending and through some measures on the taxation side as well. I am very confident that those measures will allow us to achieve the Government's targets that have been set out in the Waste Strategy. There have been a number of proposals floated at different times. We do not think that the measures that you have referred to are necessary or indeed helpful but they are not necessary to achieve the targets that we have published.

  962. But there are some perverse incentives floating around, are there not, in the taxation system, for example, the external costs of incineration, and since incineration of waste produces energy 24 hours a day it in effect reduces the base load of electricity generation, so is equivalent to displacing the average-mix electricity generation. The external environmental costs of that are actually worse than landfill according to the Government's own evidence in the published Waste Strategy 2000. When are you going to introduce a tax on incineration?
  (Mr Timms) We are not proposing a tax on incineration. We do need incineration as part of the range of measures we are taking to achieve the objectives of the Waste Strategy. I do not think there is any doubt about that. Where there is incineration we want there to be energy generated from the process but I think it would be perverse at a time when it is clear that there will need to be some increase in incineration to be taking steps with another hand to disincentivise it. However, the focus of our strategy is very clearly on promoting recycling and increasing the proportion of waste material that is recycled from waste.

  963. But if the local authority, who is trying to manage waste disposal strategy, is faced with a company coming forward with a commercial proposal for an incinerator which benefits from a Non-Fossil Fuels Obligation subsidy of the electricity of the order of £2 million a year for a quarter of a million tonnes of waste, benefits from private finance initiative for the construction of the plant, benefits from the exemption from the climate change levy, benefits from some form of rates rebate, you can see that there is a very substantial subsidy to incineration as opposed to recycling are driving up waste disposal further up the waste hierarchy.
  (Mr Timms) Energy generation of that kind would not benefit from the Renewables Obligation. Patricia may want to comment on that. It is the case that the PFI criteria for waste projects have been revised in line with the Waste Strategy particularly to look at the concerns you were raising and the revised criteria do reinforce the central place of recycling and composting in waste PFI applications. Those are the criteria that will be looked at in considering whether or not to award PFI credits for a particular scheme. I will ask Patricia to comment on the fuels obligation point.
  (Ms Hewitt) Of course the point is that the Non-Fossil Fuel Obligation has been the chief means by which we have encouraged renewable energy but we are not proposing any new rounds of the Non-Fossil Fuel Obligation although of course we will honour existing contracts that have been entered into under that order. As to the new Renewables Obligation which will replace the-Non-Fossil Fuel Obligation, we are consulting on the details at the moment, but we are proposing to exclude energy from waste incineration from the sources of renewable energy that are eligible for the new Renewables Obligation. That is precisely because we want to get the right level of incentive in order to ensure that we get some increase in the production of energy from waste incineration because, as we explain in the—


  964. Some? How much?
  (Ms Hewitt) We estimate that it will deliver about a quarter of our total target for energy for electricity generation from renewables. As we say in the Waste Strategy, we believe there is a role for energy generation from waste incineration as part of achieving that target of 10 per cent of energy generation from renewables. We think that we can get that incentive in particular through the exemption from the climate change levy but if we were to add to that the inclusion of energy from waste incineration in the Renewables Obligation we would either encourage too much energy from waste incineration, or indeed we would simply be giving a deadweight subsidy to incineration schemes that were going to be built anyway.

  965. Mr Meacher cited recently DTI projections for NOX emissions in response to a recent parliamentary question, which was 15 megatons I think by 2010, which implies a huge increase in incineration by 2010. What are the DTI assumptions about incineration capacity by 2010?
  (Ms Hewitt) Our assumptions are precisely the same as the assumptions in the Waste Strategy. That is the Government's Waste Strategy. Our assumption that energy from waste incineration will deliver about a quarter of our total target for energy from renewables is simply based upon the assumption of the Waste Strategy.


  966. That is an absolute contradiction, is it not? They are not renewables because you burn them. Therefore they are not there to be renewed. Something like wind power goes on and on so you can claim that is renewable. I suppose you can claim that the waste stream is renewable but actually the materials are not renewable, so it is a total contradiction, is it not?
  (Ms Hewitt) I do not think we do accept that, Chairman. Indeed, in line with most Member States in the European Union we believe that energy from waste does constitute a renewable form of energy. We would define renewable sources of energy as those which are continuously and sustainably available. As Stephen has rightly said, our first objective is to minimise the generation of waste and then, where that is not possible, to maximise re-use and recycling. But where there is creation of waste that we cannot avoid, if we burn it to generate energy we will save fossil fuels that would otherwise themselves be burned to generate energy. We will thereby reduce emissions, contribute to the Kyoto targets and avoid adding to the amount of landfill which is where otherwise the waste would be disposed of.

  967. So if we take some crude oil which we refine to produce fuel from it which we burn, that clearly is not renewable. But if we turn it into some product which we can then use for some years and then burn it, that is renewable?
  (Ms Hewitt) Chairman, I do not pretend to have your scientific expertise in these matters.

  Chairman: I am not suggesting any scientific expertise at all. It is a very crude statement.

Mr Blunt

  968. How is burning something renewing it?
  (Ms Hewitt) What I have tried to do is to indicate why we think that burning waste material where we have not been able to avoid the production of the waste and we have not been able to re-use and recycle it, is renewable because we are generating energy that needs to be generated and we are thereby reducing the amount of fossil fuel consumption that would otherwise be used to generate the same amount of energy. If I can put this in the broader context, Chairman, it must be utterly unacceptable that of the materials that are used to create products in the economy only one per cent of those materials are still in use six months later. Therefore, increasing resource productivity, reducing waste generation in the first place, increasing recycling and re-use and then, where we have down to an unavoidable level of waste generation, re-using it to generate energy, seems to us to be crucial.

  969. Everyone would agree with that, Minister. If you have an incineration capacity that is very large it is going to have the effect of sucking in material that might otherwise have been recycled or re-used if it had been economic for waste disposers to do that. The fact is that there are projections in the DTI, I understand, of 19 million tonnes of incineration capacity by 2010, there are projections in the DETR of 15 million tonnes of capacity by 2010, and we have now been told by the Energy from Waste Association that they expect that there will be 3.2 million tonnes of capacity by incineration by 2010; this is by extrapolation of pollution expected from nitrous oxide. There is, I believe, an inconsistency in the Government's position of what capacity of incineration you expect to have in 2010. I suppose you might not know the answer to this but I would be grateful, if that is the case, if you could go back and look at these projections because there is a great deal of alarm out there that there are incentives for incineration that are going to cause there to be more incineration than necessary and take us further down the waste hierarchy than we need to be.
  (Ms Hewitt) May I say, Mr Blunt, (and not just I) that the Government as a whole is very alive to those fears. That is why we have been very careful about how we have designed if you like the market, the structure of incentives for the various uses of waste, including generation of energy through incineration. It is why in particular we are proposing to exempt energy from waste incineration from the new Renewables Obligation. I am not aware that those projections that you have referred to and I will ask Alistair if he would like to comment on that in a minute, although I will certainly check the point and let you have a further note if there is further material to supply, but if I could make a further point, you referred earlier to PFI and the changing nature of the rules for PFI.


  970. We will come back to that as a separate question.
  (Dr Keddie) I am not sure I could add anything to what the Minister has said.

  971. Perhaps you would like to look at the transcript and if necessary send us a note.
  (Dr Keddie) Both DETR and the DTI are not setting particular figures, i.e. that there is not a very definite figure of the number of incinerators that are going to be in use by 2010. A great deal depends on how our strategy works.

Mr Donohoe

  972. This question might seem like manna from heaven to you. Many of the witnesses have indicated that the Landfill Tax as it exists is far too low and that the level should be £25. When do you, in the Treasury, see that figure being achieved?
  (Mr Timms) Last week I attended a meeting of the All Party Group on Sustainable Waste Management, where quite a number of the companies who pay the Landfill Tax are represented, and I must say it was a refreshing experience from my point of view as the Treasury Minister to be presented with a case for a significantly higher level of tax than the one we currently levy. We have chosen though to take a cautious approach on this. We want to understand properly the effects of the different levels at which the tax might be set and, as you know, we have introduced an escalator so that the rate will go up by a pound a year for five years and then in 2004 we will review what the effects have been of the application of the escalator and decide how we should take matters forward. While it is in many ways a pleasant experience to be lobbied by those paying the tax to set it at a higher rate, we want to be confident that we know what the effects of that will be before deciding how to set the rate of the levy in the future.

  973. One of the effects could be that you could push more people towards incineration and that might well be why you are being cautious.
  (Mr Timms) That is conceivably an effect of a substantially greater rate. The point the industry makes is that it would incentivise greater recycling. I think the important thing is that we proceed with some confidence about what the effects have been of these fairly modest increases that we are introducing at the moment before deciding how to go forward in the longer term.

  974. One of the less pleasant words you like is "hypothecation". If you were to take the figure of £25 and hypothecate it for waste recycling, would that be something that you in the Treasury would consider?
  (Mr Timms) There is a double hypothetical question there. We will decide in 2004 how we want to see the rate of the levy going in the longer term. In general, as you know, we are not attracted to widespread hypothecation because all the sources of Government's income contribute to the costs of meeting all of the Government's priorities. There have been cases though where we have introduced a measure of hypothecation and we would consider that if it arose in this instance at the time. It is just worth making the point that if there was to be a significant increase in the rate of the Landfill Tax and if there was something like the Credit Scheme in place as well, then that element at least of any increase would directly contribute towards the aims that the Credit Scheme is being focused on.


  975. You suggest that you will make an announcement in 2004 as to how the tax might go up, but would it not be logical to make the announcement fairly soon so that people can actually anticipate in terms of developing recycling schemes and actually making some of the schemes on the margins of viability feel that they can hang on?
  (Mr Timms) I think we would want to be more confident than we can be at the moment about the impact of a rising level of tax. As I have explained to Mr Donohoe, the aim is to proceed cautiously with these pound per year increases.

  976. I understand why you are proceeding cautiously but should you not give people some idea? It may not be that you will make the announcement very soon but perhaps in a year or two years' time rather than wait until 2004.
  (Mr Timms) I think we certainly want to wait until we are confident about what the effects have been of the current increases. Once we do have that information then we will be in a position to talk about the longer term.

Christine Butler

  977. How did the Treasury decide how much funding it would allocate to waste facilities through the Private Finance Initiative? In other words, how much and to what? On what basis was that?
  (Mr Timms) The key driver has been the objectives in the Waste Strategy. The Waste Strategy was published in May and the Spending Review was set out in July, so we were able, in putting the Spending Review announcement together, to take full account of the targets that were set in the Waste Strategy. That has been the process that we went through.

  978. Do you not think that the Private Finance Initiative support encourages potentially inappropriate capital-intensive approaches to waste management? That is why I asked my first question.
  (Mr Timms) No, I do not. The PFI is a means of procurement and it has a number of benefits and those benefits apply irrespective across a wide range of projects, in particular bringing expertise from the private sector to bear on public sector projects.

  979. Could those sums of money not have been better applied to recycling initiatives and that sort of thing, separation of waste streams?
  (Mr Timms) There is no reason why they should not be. I made the point earlier on that we have reviewed the criteria that the Project Review Group will apply to PFI projects in the waste area. The criteria do reinforce now the central place of recycling and composting in waste PFI applications.

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