Examination of Witnesses (Questions 420-434)|
TUESDAY 20 NOVEMBER 2001
420. Can I bring you to something which has
not really been discussed, energy conservation, which you mentioned
in your evidence. If I take you back to the rather graphic description
you gave about the cup of tea and the kettle and the peak in demand,
with electricity prices having gone down by 25 per cent, clearly,
there does not seem to be a great deal of incentive to get domestic
customers perhaps to use energy conservation methods which could
address the issue without raising the price for them, and solve
your problem, which you see at the moment, where the industry
is effectively subsidising the domestic customer. You say, in
your evidence: "We believe there is considerable scope for
energy saving within the UK economy," can you give some brief
outline of your preferred means for promoting such energy conservation?
(Dr Finer) We all believe in campaigns, from experience
within the industry, within individual companies; perhaps I could
pass to Ken Green, who has conducted one or two.
(Mr Green) I think it is difficult to compare the
domestic sector and the industrial sector; we need to be competitive,
we need to use as little power as possible, it needs to be cheap
to compete. I can only say that my experience over a lot of years
now is that companies in industry tend to come in campaigns at
energy efficiency, it gets to be important at certain times; and
only two and a half years ago, when I moved over to the Runcorn
site, I decided that was the time that another campaign was right.
And, in doing that, I engaged with ETSU, the Energy Technology
Support Unit, at Harwell, and basically they were quite surprised
that we turned up on their doorstep, because they thought, "well,
any assistance we will give is to small- and medium-size enterprises
who don't have the expertise." And the reality is, we have
cut and cut and cut to be competitive, both in the manpower and
in all other areas, that even large companies do not have huge
amounts of expertise; and we have found terrific benefit from
that contact. In fact, we were the first large company to sign
up to an energy partnership with ETSU, which were rolled out to
other companies, and that led us to put on conferences on the
benefits of high efficiency motors, on refrigeration, and it really
gathered momentum. Now I can only draw a parallel to the domestic
sector, where, you can use embarrassment factors, use whatever
you like, but we do need to get domestic consumers to think more
about energy, for sure.
(Dr Finer) I do think that, in homes which are not
fuel poor, price signals are less important than they used to
be, people are richer and they do not worry so much about a few
pounds extra on their gas or electricity bills; so one has to
find other means, appealing to social conscience, or environmental
conscience, as it were.
421. Did I hear you say, Dr Finer, that you
support campaigns, did you say campaigns?
(Dr Finer) Yes.
422. Who should lead these campaigns, should
it be the industry, or should it be Government, or should it be
(Dr Finer) I think the answer there is from sector
to sector; in the domestic sector it should be Government or its
agencies, in industry, a combination of the two would work best,
423. Chairman, just on that point. I understand
where you are coming from, and I recognise the fact that those
people on the middle incomes are actually the ones who can afford
to buy the fridges that use less electricity, they are the ones
that can upgrade all the time. The problem we have is those people
that are trapped in fuel poverty, who cannot afford new machines
that are better on the environment, that is the real problem,
it is how can we assist those, that is the real difficulty. It
is not the middle class, they usually take it on board, and, yes,
they want to be green and they want to be trendy because it suits
them and they can afford it, it is those people who cannot afford
to upgrade the fridges that burn a lot more electricity?
(Dr Finer) I totally agree, and that is why I said
before, I feel that what we should have is a big, well-funded,
powerful scheme of project management, which would improve the
energy efficiency of the homes of such people and really make
them comfortable and cheap places to live in, by the taxpayer.
424. Do you think that industry has a role to
play in producing green, efficient fridges?
(Dr Finer) Yes.
425. Because, more often than not, when you
look at the price of fridges, the more efficient the fridge is
the more expensive it is. How can we change that?
(Dr Finer) That is an extremely important point, and
the chemical industry, of course, is one of the industries which
is providing some of these solutions; improved insulation comes
from the chemical industry, for example.
426. Would you reduce VAT on insulation?
(Dr Finer) Yes, absolutely.
427. But not on fuel?
(Mr Green) Can I make a point, because it has come
up twice now, and having purchased energy for ICI before joining
Ineos, I have dealt with companies all over the continent, and
I think, although I am not an economist, it is easy to say that
it would be quite wrong to subsidise domestic consumption from
industry; is it not better to have your industry thriving so people
are in jobs and can afford to pay the bills, and invest in the
428. Or we give the consumer the benefit by
allowing them to claim the VAT back on the fuel costs?
(Mr Green) What good does that do?
Mr Hoyle: None; but that is what industry does.
429. Can I ask just a quick question about the
comment you made in your evidence about the joint study by the
Association for the Conservation of Energy and the Centre for
Environmental Technology at Imperial College. This points out
the potential for energy conservation within the domestic market
is over twice as large as industry. Your response to my original
question related to industry and then you were quite vague on
the domestic sector. But you do go on to say, where you talk about
campaigns: "we believe much more could be done to make final
consumers aware of the full costs of energy consumption."
And when you make that statement, are you talking about a publicity
campaign, or some practical measures to make them fully aware
of energy costs? I am sorry to pin you down, but I would just
like you to define it a little bit better?
(Mr Wey) Both are very relevant. Certainly, we would
advocate that consumers should pay a higher price for energy and
they would be aware of the costs and the load they put on the
system, and that the fuel poor should be funded through the tax
system; but, at the same time, I think there should also be much
greater publicity with regard to labelling energy-friendly products,
for example, and I think that effort must be put into both of
430. Sort of like the grading on fridges about
the amount of energy that they use?
(Mr Wey) Certainly; and I think that could be extended
to a whole range of products.
431. Just one last point on this. You have said
you do not mind the Government doing it, if it has got to be done,
but you do not want it done through the VAT approach; you have
concerns about the regulator trying to fulfil social and environmental
obligations. On the continent, there are examples of the internalisation
of these external costs through appropriate taxes and levies,
and they have been commonplace in some of the continental countries.
Would you sign up for something like that happening in the UK,
or do you just want to avoid as many taxes as possible?
(Dr Finer) What we want is as level a
playing-field as possible with competing countries. And there
are two strands of policy which have to be reconciled. One is
the logic of internalising external costs of energy supply, and
that is mainly the environmental costs, although quantifying those
is very, very difficult; and the other is ensuring that we remain
able to compete with countries round the world, so that we continue
to grow as an industry and expand and provide good jobs. Striking
that balance has to be a political judgement, at the end of the
day, I think.
Sir Robert Smith
432. Earlier, on this area, you expressed interest
in tradeable emission quotas, or something like that; presumably,
though, that is still a cost on the industry, it is a less transparent
cost but it is still a cost. How developed are those ideas?
(Dr Finer) There is some history now in the States
of such quotas for sulphur dioxide emissions, I think it has been
going for a few years now, and it seems to work reasonably well;
so the idea is developed in that sense. But also a lot of work
has now been put in, in the UK, to develop the ideas and they
are pretty well ready for implementation.
433. It will still be a cost, collectively,
on the industry, obviously?
(Dr Finer) Yes.
434. But a more flexible ability to respond;
what is the advantage of using this trade?
(Dr Finer) The advantage is that the person who is
most wasteful in energy finds it economically advantageous to
do something about it and thereby produce saleable trading instruments.
(Mr Wey) If I can just add, I think our concerns are
that the UK should perhaps move too fast in this particular area
and develop a scheme that perhaps has rather higher costs than
our competitors. Certainly, the advantage of emissions trading
is that it enables a least-cost solution to be developed, and
we would support that; but I think our concern is that, for example,
if you have an absolute cap to your emissions then that will affect
the growth of the industry, and it is how these caps are determined
and how your progress is monitored that concerns us very much.
So that if the UK is a first mover then investors wanting to reinvest
in the industry may shy away from the UK because they see a limit
on the ability of the industry to grow in this country.
(Mr Green) Mr Chairman, if I can add, I think the
concern is, and Keith mentioned the looking ahead, that the scheme
that we have got on the stocks now does not look terribly compatible
with Europe now having looked at its own ideas and being able
to take things forward. Because, if we struggle to look for competitive
advantage, one of the things we can do is, if we see a scheme
like that in place and we can actually perform better than the
targets that are set then we have got something to sell and gain
Chairman: I think, at that point, gentlemen,
we will finish. I think, the last time you came and spoke to us
about the Climate Change Levy, out of the discussions we got some
progress; whether we will get as much today, in relation to the
PIU report, remains to be seen. But there may be one or two points
we will want to pick up in writing with you, so we will be in
touch, Dr Finer. But thank you very much, gentlemen, for your
time and your trouble. Thank you.