Select Committee on Trade and Industry Minutes of Evidence


Examination of Witness (Questions 560-579)

MR STEVEN TINDALE

TUESDAY 4 DECEMBER 2001

  560. On the issue of carbon sequestration, which was touched on earlier, in your submission you very much are against carbon sequestration. What evaluation have you made of the various pilot projects with this technology?
  (Mr Tindale) We have a laboratory in Exeter which is looking at this area and it is an ongoing evaluation. Our objection to carbon sequestration is not an in principle ideological objection, but it is really on the basis that we think it is likely to prove another expensive diversion and we are concerned at the level of certainty because carbon dioxide is more likely to escape from underground sequestrated vaults than solid hydrocarbon or oil or even methane, so we have certain practical objections to it, but we are, as I say, evaluating the ongoing projects.

  561. But in the short to medium term carbon dioxide is going to be generated, so is there not an advantage in buffering at least by sequestration, which has been the most successful, taking it out of the climate change equation for at least the time of sequestration until we get to the time when we are not producing so much carbon dioxide emission? Is there not a clear benefit from taking it from here to there?
  (Mr Tindale) Well, I think that is why we say we do not have an ideological objection to it. We are looking at it to see whether it will deliver those types of benefits that you have suggested.

Chairman

  562. How do you have an ideological objection to a technology?
  (Mr Tindale) Perhaps "ideological" is the wrong word. We have an in principle objection to nuclear power for the reasons I have mentioned. It always produces radioactive waste, it always produces radioactive emissions.

Sir Robert Smith

  563. But you say basically that radioactive waste is far more dangerous than global warming?
  (Mr Tindale) No, we have not said that. What we have said is that we believe that nuclear power can be phased out in a very short timescale. We recognise that phasing out fossil fuels will take longer.

Mrs Lawrence

  564. As a very quick supplementary to that, the nuclear industry are pressing their, as they see it, environmental benefits in terms of sulphur emissions and climate change, but do you think that within the argument overall there is a danger, a tendency that the cumulative effects of radioactive emissions, albeit small, to the environment through air and through water plus the waste issue are tending to be overlooked in the overall picture of energy? Do you think the importance of it is not being necessarily recognised?
  (Mr Tindale) That is correct. Whilst we welcome the increased public and governmental attention being paid to climate change, we counsel against assuming that climate change is the only environmental issue raised by energy generation and it would be a great mistake for the Government to go down the nuclear route on the grounds that it would help its climate change targets because it would be making all sorts of other environmental issues seriously worse.

Chairman

  565. That was not the view taken by the Royal Commission on Environmental Pollution though, was it?
  (Mr Tindale) The Royal Commission had a number of scenarios, some of which included nuclear power and some of which did not.

Mr Berry

  566. I suppose there are risks associated with all sorts of energy production and the one thing in your submission which you also emphasise is about energy efficiency and you stress that that is an important factor in this whole debate. Of the measures you suggest, they seem to be, not entirely but mainly, geared towards the business sector. Is it not the case that it is the domestic market that is being the most resistant to incentives, encouragement to use energy more efficiently and is this not a significant problem? How would you promote energy efficiency amongst domestic consumers?
  (Mr Tindale) I am very tempted to pass this question to the gentleman from the Energy Saving Trust to my right, but I will endeavour to answer it. I think the price mechanism works better in the non-domestic sector. There are reasons why it is difficult to use price to promote energy efficiency in the domestic sector—not necessarily impossible, but more difficult—and those are to do with fuel poverty and concerns for fairness and also to do with tenant/landlord issues and the fact that different people are paying the bill and owning the building. There are other measures, such as measures on domestic appliances, which could significantly reduce energy consumption in the domestic sector. The proposals we have on building regulations for both new build and for refurbishment would impact on the domestic sector as well as on the commercial and industrial sectors. The recommendation we made about landlords having an obligation to let their property in an energy efficient state as well as in a state that is passing health and safety rules we think would have a major impact upon the most difficult issue that tends to arise in these debates which is the tenant/landlord issue.

  567. In relation to the very controversial issue of the prices that domestic consumers face, presumably in terms of energy conservation one of the `problems' is that the domestic price is actually low and is falling and that if one were concerned about the fuel quality aspects of that, then yes, you could impose a tax on the domestic use of energy, but you could compensate the income loss appropriately. The problem at the moment is that the signals going to consumers are to consume more rather than less. Does this not worry you given the very high importance you attach to energy efficiency?
  (Mr Tindale) I have to say it does not worry me greatly because I have not seen any evidence that there is a particularly high elasticity of demand for energy in the domestic sector. I think once we have got to a stage where our housing stock has improved from its current disgraceful state, then it might be time to look again at the use of price in the domestic sector, but I would certainly begin by addressing the issue of the housing stock.

Mr Lansley

  568. In your memorandum to us, you talk about energy productivity and you have suggested an aspirational target of 50 per cent reduction in primary energy use. This appears to be based on a discussion document provided to the Environment Agency. Why not an aspirational target of 30, 40, 60, 70, why 50 per cent? Was the lodging of that merely intended to stimulate discussion rather than to be a recommendation of policy? Why have you turned it from one thing into another?
  (Mr Tindale) Because we read it and thought that the scale of reduction sounded plausible. We spoke to friends and colleagues in the energy efficiency world who confirmed that that was a plausible scale of reduction and we, therefore, formed the judgment that that was the right target to go for. An aspirational target because it would not, in our view, be sensible to set a binding regulatory target even 50 years ahead for that scale of reduction.

  569. In the latter part of your memorandum, this has turned into a vision laid out by the Environment Agency. Do you think the Environment Agency endorse this 50 per cent target?
  (Mr Tindale) My understanding is that the Environment Agency have published the paper and they have said that they regard it as plausible. They have not said that they are recommending it as a firm target to go for.

  570. Could we have a look at whether things which are plausible should necessarily be policy. Have you estimated the increase in cost of energy consequent upon achieving a 50 per cent reduction in primary energy use through using government instruments, effectively increasing taxes and the like in order to achieve that?
  (Mr Tindale) It is not possible to make that judgment in isolation because the extent to which you need to increase energy costs depends entirely on the other measures that you are putting forward. If the range of measures that we have talked about, that the Environment Agency discussion document has outlined in much more detail and then other people, such as the Energy Saving Trust or the Association of Conservation of Energy, have recommended to the PIU, which is a very, very broad range of measures, with all of them being implemented, then the increase in the Climate Change Levy that would be necessary would be greatly reduced. If you used the Climate Change Levy as your sole instrument, then clearly you would then have to ramp it up very considerably.

  571. You were talking previously about the domestic sector. Have you made any estimate of the extent to which the industrial sector, by extension, would be more responsive to price changes and signals? By extension, are they not already sensitive to the cost benefits that arise to them of energy efficiency? To what extent have you already estimated the extent to which the industrial sector will achieve energy efficiency through their own efforts without having the use of regulation or tax?
  (Mr Tindale) Well, there is a great deal of literature on the reasons why currently cost-effective savings are not made by rational actors, such as firms, and it is to do with access to capital, it is to do with short-termism, it is to do with management attention and so on. An instrument like the Climate Change Levy, particularly if coupled with long-term signals, which is why we support a pre-announced year-on-year increase in the Climate Change Levy, will address many of those problems. If they bring it on to the board's agenda, it will make sure that more priority is given in terms of access to capital, to energy savings than to other investments and it will make it clear that in the long term a rational company should be planning on the basis of gradually increasing energy prices rather than, as has happened in the past, a reasonable assumption being that energy prices are going to fall.

  572. So if you rest upon the Climate Change Levy and it escalates in the way you are suggesting, what do you consider would be the impact on the competitiveness of companies as a consequence of that? What kind of changes in investment, what kind of changes in employment and competitiveness would result from that?
  (Mr Tindale) You have to differentiate, I think, between the microeconomic and the macroeconomic. At the level of the macroeconomic impact, if you do as the Government has done and reduce other taxes to compensate for an increase in energy taxation, there is no significant macroeconomic benefit. There may be a small employment gain if you reduce labour taxes. If you look at the level of the microeconomic, then potentially there is clearly an impact on some firms and some sectors. That can be mitigated through the design of the tax and the energy efficiency agreements. Although perhaps not perfect, they are an attempt to mitigate the impact on some sectors. The other point is that gradual increases in price are going to have a much lower impact than a major shock. People sometimes talk about the 1970s oil shocks and the fact that they had a bad economic impact as an argument against high energy taxes. We believe that that is an inaccurate comparison because that was an open-eyed dislocation. What we are talking about is a planned, gradual increase. The last point is that there is no correlation at the macro level between industrial success and energy prices. You can point to economies that have been very successful with low energy prices, such as the United States, and you can point to economies that have been successful with high energy prices, such as Germany and Italy; there is no correlation.

  573. But is not your answer to that previous point based upon an assumption of the United Kingdom economy operating in isolation from other economies? Is it not the case that firstly there are macroeconomic consequences associated with higher energy costs in the UK relative to other economies and a loss of competitiveness relative to other economies and is it the case that, particularly with an escalating energy cost influencing investment decisions, location decisions on investment decisions would change between the UK and other economies?
  (Mr Tindale) We are certainly not assuming that the UK is operating in isolation. The macroeconomic competitiveness of the UK is dependent upon a whole range of factors which include labour costs as well as energy costs, probably labour costs being a more significant factor. As long as you are reducing taxation in that area, whilst increasing it in the area of energy, then you are not going to have a macroeconomic impact. As I said, there are some firms, some sectors, for whom these competitive issues are going to be greater. That we believe can be addressed through the type of measure that the Government has been looking at.

Chairman

  574. On the labour point, there is as yet no evidence to suggest that the Climate Change Levy is going to result in a significant change in employment, because as I understand it the research on which it is based has been shown to be fundamentally flawed in so far as the IPPR report which recommended a cut in national insurance contributions by employers suggested that the area of likely growth would be in the retailing sector, and when we took evidence two years ago on the Climate Change Levy (of which I am not the greatest fan, but for which I think there is a case), a point was made that in fact retailing was going to be hit as hard by the Climate Change Levy as anybody, given the cost of refrigeration and things like that. So I am not sure that we can be quite sanguine about the employment consequences of things like the Climate Change Levy, and certainly I think you would have to take on board that the accelerator principle in taxation is not one that this Government would sit that easily with, given what happened to petrol prices and the reaction of the public. There are two points there. What is your response?
  (Mr Tindale) The first point is that the literature about the so-called double dividend on environmental tax reform is extremely voluminous.

  575. And aspirational as well.
  (Mr Tindale) The debate, it seems to me, is between those who say there will be no employment effect and those who say there will be a positive employment effect. The debate is not about whether there will be a negative employment effect. So we would argue that there is a clear environmental dividend and that there may be an employment dividend, but even if there is not an employment dividend it should be done for environmental reasons because it does not have an employment cost. There are many reputable studies—for example, those of the European Commission around the Delors White Paper—which argue very forcefully that there is a positive employment benefit, and there are also good economic theories supporting that, to the extent that one believes them. On the second point about the escalator, the taxation cannot be seen in isolation from the actual cost. The fuel escalator—the petrol escalator—worked perfectly well whilst the price of petrol was otherwise falling, and indeed it was beginning to have the desired effect in terms of its impact on manufacturers who were beginning to bring forward more fuel to retailers. It ran into problems when the price of oil went up and therefore the price at the pump went up. That was probably the time for the Government to take its foot off the escalator but to continue to give the long-term signal that the price of motoring would have to increase gradually over time in order, first of all, to encourage people to find more fuel-efficient vehicles and manufacturers to produce them and, secondly, to influence location and planning decisions. So our criticism of the Government's reaction to the fuel protesters was that it failed to give those long-term signals.

  576. As far as the question of the Climate Change Levy is concerned, if the price of gas goes up, then the argument for the Climate Change Levy is not as strong, because the deterrent to profligacy is incorporated in the price mechanism rather than fiscal instruments, is it not?
  (Mr Tindale) That is right. What needs to be done is for the Government, as with petrol, to give a long-term signal that the price of energy gradually over time will increase. If in particular years that increase has come about as a result of the price of gas, then an argument for an increase in the tax is much less strong and probably non-existent.

Mrs Lawrence

  577. If I can bring you back to a point you made earlier about the need to recognise that renewables can be a wide range of energy-efficient possibilities, in your evidence you say you do not consider incineration of municipal solid waste to be a renewable form of energy. You have given your reason for objecting: heavy metals, dioxins, etcetera. Do your objections also extend to technologies such as pyrolysis and gasification?
  (Mr Tindale) Again, these are relatively new technologies, pilot programmes are being carried out and our next level is evaluating them. Our initial response to these technologies is, first of all, that they are likely to have environmental disbenefits and, secondly and perhaps more importantly in this context, that they are a diversion from the real way of dealing with waste which is waste reduction, minimisation, recycling, composting, and that there are actually better ways, even from an energy perspective, of dealing with the waste issue than going down the gasification and pyrolysis route. We have not, I suppose, taken an in-principle objection to them.

  578. So you have not actually analysed the technologies? It is an ongoing analysis?
  (Mr Tindale) It is an ongoing analysis, yes.

  579. We are told that the Government will not reach its 10 per cent targets for renewables unless waste is included. Have you any comment on that?
  (Mr Tindale) Yes. You are told by whom, is my question. The issue is what policies the Government is prepared to implement, if the Government is prepared to encourage renewables through the building regulations, to implement the renewables obligation fast, without any further delays, is prepared to continue its welcome investment in offshore wind—but Tony Blair did describe that as a down-payment and we have not yet seen the rest of it. So there are lots of possibilities that the Government could implement and, in our view, should implement, which would make the 10 per cent target not only easily achievable but relatively modest. I think the people who say that you will not hit it without waste are probably saying that you will not hit it without waste on current trends, if the Government is not prepared to do anything else. We do not regard that as a full answer.


 
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