Draft Climate Change Levy (Use as Fuel) Regulations 2001

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Mr. Andrew Stunell (Hazel Grove): There was a moment when I thought that I might get in pole position, but fortunately the hon. Member for West Dorset (Mr. Letwin) arrived to rescue me.

I thank the Financial Secretary for his introduction and analysis of the problems of climate change and the challenge that it presents, which was spot on. The problem is that the Government's solutions have been partial and slow. When the Finance Act 2000 was in Committee, my colleagues and I shared the opinion that the climate change levy was flawed, deficient and complex. The Liberal Democrats view the tax in a different way from the hon. Member for West Dorset, and the argument is about whether the cup is half full or half empty.

On balance, we think that the climate change levy provides a practical way of progressing in the present circumstances, but we argued in Committee that the levy should have been a more properly carbon-based tax rather than the somewhat hotchpotch performance that we have. We also argued that it should start at a lower level than that proposed by the Government and that it should then be incremental over several years—somewhat analogous to the landfill tax. Business and industry would then have had more opportunities to take account of the need to adjust to energy efficiency in their long-term business and investment plans, rather than having the tax dumped on them in one bound. We would have gone further than the Government, and we tabled amendments to increase the levy in later years, because sending a clear, long-term signal would have been the best way to achieve a change in behaviour and investment.

There should have been greater reinvestment in energy efficiency from tax than the Government proposed. Initially, they declared that £50 million would be set aside; the figure is now £150 million. Has the Financial Secretary any reason to believe that that figure will change? What will the take-up be? The proportion of the tax being reinvested to achieve the overall objective of reducing carbon emission is insufficient, and does not provide enough incentive and encouragement.

Like the hon. Member for West Dorset, I do not take issue with the use as fuel regulations, and I understand his point about what is and is not fuel in common language. I suspect that the Financial Secretary will say that common usage and common language do not have a place in statutory regulations; I await his response with interest. The content and intention of the regulations are sensible; perhaps the Financial Secretary will confirm that they are the result of intensive discussions with manufacturers and take account of their particular industrial processes.

The CHP regulations, with conditions for exemption, were hotly debated and contested during the passage of the Finance Act 2000, and the Combined Heat and Power Association lobbied strongly on the matter. Has the Financial Secretary received any representations about the regulations? Do they represent an agreed outcome? The associations may have been consulted on the regulations, but have they agreed to them? I would welcome reassurance on that important matter because combined heart and power can make a substantial contribution in the transition to reduced carbon dioxide emissions, and nothing should inhibit that.

I remind the Financial Secretary that the industry expressed its anxieties during the passage of the Finance Act 2000. Investment projects were deferred and I was told that there was little chance of achieving the proportion of combined heat and power stated by the Government. The Financial Secretary did not say enough on that matter, or about the subsequent discussions. What is his best estimate of the share of combined heat and power in the United Kingdom energy-generating portfolio consequent on the regulations?

An important consequence of the energy-intensive installations regulations, appears to be the removal of thresholds that would have prevented smaller installations from benefiting. The Financial Secretary nods; perhaps he will confirm that in due course, because it seems to be a worthwhile and helpful change.

The gas and electricity regulations are required because we do not have a carbon tax; taxing the use of energy is significant because of the extent to which one can capture the carbon content. To decide instead to go for a levy produces some strange anomalies. The regulations try to patch up another area in which the levy is deficient compared with a carbon tax. However, it is necessary to bring some order and sense to the current structure. Following discussions with the generators and the fuel producers, is the Financial Secretary satisfied that the regulations are a workable and practical solution to the problem?

On the solid fuel regulations, the idea that there is significant business in selling sweepings is something to conjure with, and most tax proposals would miss it. Is there an estimate of the extent of that market? What numbers are we talking about? I say to the Financial Secretary, not entirely seriously, that the burning of sweepings contributes to carbon dioxide emissions and probably to other greenhouse gases, too. I doubt that it is the most efficient combustion process available to man and I wonder how big the loophole is. I do not object to the proposal; I am asking questions in a spirit of inquiry.

The five sets of regulations—there may be others to follow—underline the point that my hon. Friends and I made during the passage of the Finance Act 2000: the levy is a complex measure when the Treasury could have used a simpler and more effective mechanism. As we now have that tax, however, I do not object to the regulations.

10.22 am

Mr. Andrew Miller (Ellesmere Port and Neston): As you know, Mr. O'Brien, my constituency, where petrochemicals are manufactured, is probably a bigger consumer of energy than that of any other member of the Committee. Companies in my constituency made representations on the matter to me and I welcome the progress that has been made.

I have discussed combined heat and power stations before with my hon. Friend the Financial Secretary. At one time there were 11 planning applications within a 5-mile radius of the centre of Ellesmere Port, some of which caused great consternation, as it was believed that only a few of them were for genuine CHP plants. Is my hon. Friend satisfied that the regulations as drafted will allow only genuine CHP plants? Will he confirm that there is no loophole for electricity stations that will waste steam? He will remember that one particular application was frozen by the moratorium that fitted that category, and it caused considerable anxiety. When I asked the electricity suppliers to tell me how much excess steam was available for local distribution—in housing, for example—they said that it was impossible to distribute it. I retorted that excess steam going up the spout does not accord with the sound definition of CHP plants. Can my hon. Friend offer some comfort to my constituents who want to be sure that the plants are genuine CHP plants?

10.25 am

Mr. Peter Luff (Mid-Worcestershire): The hon. Member for Ellesmere Port and Neston (Mr. Miller) raises a fascinating question for the constitutional experts among us. Although he is not a member of the Committee, he is rightly free to speak to it, and—

The Chairman: Order. He is a member of the Committee; a new list of members has been published. He is a bona fide member of the club.

Mr. Luff: I picked up the list from the Table just as the Committee began. It is always good to hear the hon. Member for Ellesmere Port and Neston, and his intervention was helpful.

Mr. Miller: This is not a sit-in.

Mr. Luff: The hon. Gentleman anticipates the point that I was going to make.

The regulations are welcome changes, but they highlight the complexity and bureaucracy of the levy itself. The hon. Member for Hazel Grove (Mr. Stunell) proposed the alternative solution of a carbon tax, but I am not confident that that would be any less bureaucratic. Conservative proposals on emissions trading are greatly to be preferred and would avoid the nonsense that we are saddled with.

Will the Financial Secretary comment on the lack of consultation on the final form of the regulations? Last Friday, I received an urgent telephone call from an old friend of mine in the public relations world. Her company had sought an exemption under the regulations, but she was unable to obtain information about whether her request had been accepted. I had to go to the Vote Office to obtain a copy of the regulations for her. It was no small beer for the company, because £4 million hung on one line of the regulations. Is the Financial Secretary satisfied that adequate consultation has taken place?

I echo the hon. Member for Hazel Grove on the combined heat and power and the electricity and gas regulations. Horticulture is important to my constituency and is seriously caught up in the climate change levy. Many of my more enterprising and forward-looking growers are seeking to develop modern and efficient CHP systems, but the price of gas has posed a problem recently. Details of the regulations are immensely important to the future of horticulture in the Vale of Evesham and elsewhere.

Have the Government listened to representations from CHP operators and potential operators in all sectors of British industry, and have they acted on them? Can the Financial Secretary reassure us that such operators are satisfied with the regulations? I have received no representations on the details of the regulations, which I suspect owes something to their relatively late publication.

The list of exemptions in the use as fuel regulations and the provisions of the energy-intensive regulations are also fascinating. Worcester Royal Porcelain, though not in my constituency, is an important international company that trades around the world, and brick manufacturers my constituency also use huge quantities of fuel. As energy-intensive users, they were greatly aggrieved by the original proposal to introduce the levy, which they viewed as a direct attack on their competitiveness, as competitors elsewhere did not face similar provisions.

Some relief has been offered, but I do not know how effective it has been. I ask the Financial Secretary—particularly in view of the Budget's introduction of the wretched concept of an aggregates levy, which will be a further burden on the construction industry—whether he is confident that companies such as Baggeridge Brick at Hartlebury in my constituency are satisfied with the regulations.

I must declare an interest in relation to the solid fuel regulations, as vice-president of the Severn Valley railway. I am also a shareholder, for which I receive four first-class return tickets each year between Kidderminster and Bridgnorth. I am also a member of the Great Western Society, based at Didcot. I am genuinely grateful to the Financial Secretary for the correspondence that I have had with him about coal and its use in steam engines. He has clarified that when coal is used for a genuine transport exercise, such as that between Kidderminster and Bridgnorth on the Severn Valley railway, it will be exempt from the provisions of the climate change levy. I have had that in writing from him, and I am sure that he will be able to confirm that today.

I understand that the terms of the climate change levy as it applies to coal mirror strongly the VAT regulations, hence the exemption reads straight across. The Severn Valley railway is grateful for that confirmation. It took a little while to get it out of the Government and early answers were disappointing, it must be said. I am sure that the Financial Secretary understood how important it is that the heritage railway sector is not caught up in unnecessary costs. The Severn Valley railway faced an estimated additional burden of £85,000 a year. The idea of a steam railway cutting down the use of coal is clearly nonsensical.

I wonder whether the Minister might have gone a little further on the solid fuel regulations. The Great Western Society at Didcot will still have to pay the climate change levy, because its steam engines operate within a confined area, unless they go out on to the main line. I assume that it can have two piles of coal: one for main-line running and one for when it is in the confines of the depot at Didcot. It will have to pay the climate change levy because it does not operate a genuine transport service. The sum involved is modest, in the order of £3,000 a year. Its latest newsletter to members says that it is prepared to live with that. It accepts it as a consequence of the climate change levy, but it is unhappy about it.

The Government set a marvellous precedent in the Budget when they refunded to churches the cost of VAT through a grant. Could some similar mechanism be devised for steam depots? I do not pretend that they will be crippled by these provisions—clearly, they will not—but they face an additional burden. At a time when tourist attractions are looking for every penny they can find because, with foot and mouth, liquidity could become a real problem, could the Minister not find it in his heart to reconsider the solid fuel regulations to try to do a little more for the railways of the United Kingdom?

10.32 am

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