Examination of Witnesses (Questions 360-379)
19 MAY 2004
MR PHILIP
SELLWOOD AND
DR NICK
EYRE
Q360 Mr Francois You highlight CHP there
but, as I understand it, a decision is going to be dependent upon
fuel trials, which could last for up to two years. You have intimated
that you think potentially it is quite important, but there does
seem to be quite an element of jam tomorrow in all of this. What
are your thoughts on that?
Mr Sellwood: I think it is somewhat
unfortunate, in that, through various means we managed eventually
to get this decision from Treasury on micro-CHP, unfortunately
just at the point at which the arrival of micro-CHP on the market
seems to have moved further away from us. I think really it is
just unfortunate timing. Having said that, and obviously colleagues
behind me who are managing the field trials, we are absolutely
clear, because we are working closely with the Carbon Trust on
this, that it is absolutely essential that we get that right before
we start giving too many significant price signals to the market.
Nonetheless, it is a welcome move.
Mr Challen: I did see you shaking your
head when I asked the question about whether the two organisations
should be joined together. Presumably the answer is no, from your
point of view. I will ask you if you want to say anything about
that when we return.
Chairman: We will break for the division.
The Committee suspended from 5 pm to 5.10
pm for a division in the House.
Chairman: We can now recommence.
Q361 Mr Challen: If I were an architect
working for a large housebuilder, to whom should I go for advice
on designing houses, would it be you or would it be the Carbon
Trust, or both?
Mr Sellwood: Actually, if it were
managed housing probably it would be us, but probably it is neither.
It would be CIBSE, probably, or CABE would be the organisations
which would best advise on thermal energy efficiency, or possibly
even BRE. We are not experts in that field.
Mr Challen: I will not pursue that point.
Q362 Chairman: Does not that illustrate
one of the points which Mr Challen is making, which is that there
are too many organisations, it is confusing for the public and
it is confusing for business?
Mr Sellwood: I do not agree. I
think that the level of functional specialism that is required,
in terms of delivering on the message, so, for instance, your
example, the level of technical excellence that is required in
housing, means that really if you did take your thoughts to the
common conclusion we would have one absolutely enormous organisation
with functional specialisms sitting within it. I do not think
necessarily that is really what people are looking for. All I
can say is, reflect, in a sense, because, obviously, we have talked
about it in a very general sense, that we do not have lots of
customers saying to us, "Why aren't you merged with the Carbon
Trust?" If we get the focus wrong, if we approach the wrong
audience with the wrong message, or we do not get the message
right, then they are very quick to pick us up and say, "This
is not actually what we want." We are clear this is less
an institutional issue and more an issue about having the appropriate
knowledge delivered to the appropriate audiences.
Q363 Chairman: You do not think there
is scope for a one-stop shop?
Mr Sellwood: I think the one-stop
shop would dwarf Tesco's, it would be enormous, because there
are so many different audiences that need those functional specialisms.
I am not saying it is impossible but it would be a very, very
unwieldy organisation.
Q364 Chairman: Can I return to the question
of heat pumps. I am intrigued by this. It came sort of from nowhere,
this Budget proposal, and I just wonder whether you have done
any work since the Budget on the size of the market for domestic
ground-source heat pumps?
Mr Sellwood: The answer is we
were as surprised as you were, because we had not put forward
a particularly strong case for heat pumps specifically. We have
done two things since then. One is that we have started to undertake
some serious work, as I said, in Scotland, where we have a presence
already in managing programmes around heat pumps. We do not manage
that programme in England, unfortunately, which is an interesting
observation compared with the last question, where I would agree
there are some issues. Nonetheless, we are finding that there
is clearly a significant market in certain localities, and those
certain localities have a certain commonality—rural, off
gas—so we are seeing already some interest in Northern Ireland,
as I say we have got quite a lot of interest in Scotland. If you
were to ask me how big the market is, we have no idea how big
it is at the moment.
Q365 Chairman: I looked at a website,
because I am a diligent sort of chap, this is a little out of
date, it is 2002, and I discovered that the Director of IEA Heat
Pump Centres, making a speech in the Far East, I think in Beijing,
said that probably there were between 100 and 200 installations
of ground-source heat pumps in the United Kingdom. That does not
sound like an awful lot to me. This sounds so marginal, so peripheral,
that for the Chancellor to announce it as one of the key planks
of his Budget, in relation to the whole question of climate change,
frankly is insulting?
Dr Eyre: I would not be as negative
as that.
Q366 Chairman: It is not your job to
be.
Dr Eyre: Let me remind you that
the Chancellor removed excise duty from hydrogen when there was
no hydrogen at all being used in UK vehicles. In the sense of
giving the right signal to a future technology, it is important,
but, yes, one might be slightly cynical and say, well, it is also
rather cheap for the Treasury.
Q367 Chairman: It will achieve the square
root of nothing, in terms of reducing carbon emissions?
Dr Eyre: If it were sufficient
to make the market take off then it would do. The data we have
got from our Scottish scheme is that in average applications it
is saving two tonnes per household per year, and it is saving
consumers about £250 per year. For the additional cost that
Philip talked about earlier, that is unlikely, in our judgment,
to make it attractive in the short term. Clearly, if somebody
could bring down the cost and produce a cheaper heat pump then
the market opportunity would be there, and in that case the VAT
reduction would be welcome.
Mr Sellwood: It is also just worth
considering, and again without overstressing the point, in those
areas, for instance, and it is to an earlier question that was
asked, where gas is not freely available and people are relying
on oil then suddenly this becomes a much better commercial proposition.
Certainly, when you have got the combination of oil, rural and
off gas, I do not think anybody is saying that this is the answer
to the low-carbon economy.
Q368 Mr Challen: Putting aside for one
moment the major expansion in the Energy Efficiency Commitment,
what other significant measures in the Plan would you identify?
Mr Sellwood: I may dwell for one
minute on the Energy Efficiency Commitment. We welcome the Plan,
broadly, I suppose, because it delivers on some of the practical
means of delivering on the policies, and with the exception of
the absence of some of the fiscal measures we are pretty happy
that the policies are in place. Where we are less happy, and no
doubt we will come on to this, is the change, as we see it, in
the post-2008 EE Commitment, which currently is still due to run
at double the existing level to 2011. It was our contention, and
still is, that, in order to make the step change necessary in
terms of meeting the original targets, that needed to be three
times the existing level if it was to deliver on the Energy White
Paper original targets, and we may well come back to that, in
terms of how the targets have changed. The second area where we
are concerned is, even though there is a commitment in the Implementation
Plan, just to give it some context, the Plan depends, in terms
of delivering for the Energy Efficiency Commitment, 70% depends
on delivery of cavity wall insulation, four and a half million
cavity walls. I have to tell you that the last three years have
seen a 3%, a 5% and, with all that we and others have done, a
13% increase, in the last three years, so in the last three years
that market has seen a 20% increase. Actually it has to double
every three years between now and 2010 in order to meet the overall
target, so we believe there is still a lot to do in terms of incentivising
that market.
Q369 Mr Challen: Then what should the
Government do to incentivise the market to achieve those levels?
Mr Sellwood: There are some who
would say this is all about a fiscal incentive or a tax incentive.
We think there is room for linking some of those fiscal incentives,
but, if you look at it commercially, the truth of the situation
is that there is no real market in cavity walls, it is a subsidised
market. You can go out into the market-place today and buy cavity
wall insulation at a 90% discount. The reality is that the barriers
to entry in the market are customers' ignorance, and I mean ignorance
in the sense of knowing what it is for. There are a lot of myths
around how much it costs and also the sort of damage it does to
your house. I think the answer is, and one of the things that
we are actively involved in, this has got to be about a hard-fought,
public education campaign, using the supply chain, using installers
and using the big manufacturers.
Q370 Mr Challen: Have you made representations
to Government about that, and what has been the response?
Mr Sellwood: We have. You will
remember that we had a similar concern about condensing boilers,
which has yet not gone away in its entirety. I am pleased to say
that, as a result of what we talked about last time, in terms
of persuading a combination of DfES, the Treasury and others,
we have been able to put together a fairly detailed training programme.
We have some confidence, growing confidence but I would not say
certainty at this stage, that we will be looking to train upwards
of 50,000 heating installers and plumbers in the next 15 months,
ahead of the change in the Building Regulations. Government and
the private sector and ourselves are working together to deliver
that. The biggest problem that we have with something like cavity
wall insulation, which is such a key measure, is that actually
there are 1,500 installers. The average installer is one man and
a white van, and they do not have, in the same way that gas installers
have, to belong to a trade association, so it is very difficult
to access these individuals within the supply chain, but it is
a pretty key job.
Q371 Mr Challen: It sounds like a good
opportunity for some Polish craftsmen to come across and do the
job for us. The Government has revised down its domestic energy
efficiency savings from 5MtC to 4.2MtC. Do you have any explanation
for why that has happened? Were you consulted on it? What representations
did you make about that, if any?
Mr Sellwood: We were very involved
in developing the Plan, as you can imagine, on the basis that
we are one of the major delivery vehicles for delivering the Plan.
We have to say that we did not have the final decision, in terms
of the figure, and we have to say also that we do not agree with
it, for three reasons. For those who are not fully conversant,
it has moved from five to 4.2 and we take issue with three things.
One is, you will remember that a significant part of the first
Energy Efficiency Commitment is the delivery on appliances and
white goods. There is something called the market transformation
effect, ie if we subsidise or give grant aid through EEC to only
50% of white goods, what it does not take into account is the
other 50% which are not subsidised by energy suppliers and retailers.
This is a recurring annual saving, and for some reason that has
not been taken into account. Certainly we would like to make,
and have made already, additional representations to Defra to
look at those figures, because we are not convinced they are correct.
Dr Eyre: The assessment that we
made, in advance of the Energy White Paper, was that the scope
for carbon savings in the white goods sector was approaching one
million tonnes in this decade. Although we have not got access
to the way that Defra have come up with their calculations of
0.1 million tonnes, ie 10 times smaller, I think, even without
access to that information, we are fairly sure that it is a serious
underestimate of what actually will be delivered by the policies
which are set out in the Action Plan. We are not saying in this
case that more policies are needed to deliver the carbon savings,
we are saying the converse of what is often the problem, that
actually the policies are there but the carbon savings have not
been counted.
Q372 Chairman: Mr Sellwood, you had some
other reasons?
Mr Sellwood: The second I have
referred to already, which is the gap, in a sense, between 2008
and 2011, at double, as opposed to treble, which was what originally
we said needed to happen in order to deliver an additional 700,000
tonnes of carbon. We do not have an answer as to why that has
changed. It may be that, with the onset of emissions trading,
there is a view which says that when that becomes available the
Energy Efficiency Commitment will be less effective. We do not
know that, but certainly it was our contention, in order to meet
the original target, it would need to be at triple status. The
third thing is, again, I have referred to it adjacently, that
there are a number of measures which have not been factored into
the Plan, even though certainly they are going to be within the
lifetime of this Plan. The first one I mentioned was the advent
of the Home Condition Report, which will require every home to
have an energy rating. It is our view that if we could link that
energy rating to a stamp duty rebate and/or surcharge then this
would be a powerful financial motivator for the 1.2 million people
who move every year actually to do something about energy efficiency,
and that is not in the Plan. We think those three things together
would more than reach the target that was set out originally.
Q373 Joan Walley: I would like to come
back on that first point, in view of the Energy Bill, and the
implementation, if you like, of the Energy White Paper into the
Energy Bill, and the bearing which what you have just said has
on not just the Budget but on the work which is being done to
legislate for those reduced savings. You said that you have been
very much involved in developing the Plan and that you were going
to be the delivery vehicle. I wonder what talks you have had with
the DTI about the way in which there is going to be legislation
now to implement that?
Mr Sellwood: Obviously, we talk
to the DTI, Defra and, with our other hat on, DfT constantly about
the development of the Plan, or both Plans, the Transport Plan
and the Energy Plan. At the moment it is quite a timely meeting.
Literally, we have come fresh from this, in terms of the Implementation
Plan being published last week, so as yet we have not had any
further discussions, but obviously, through SEPN and others and
talking direct to DTI, we will be making our representations.
Q374 Chairman: Presumably, to the extent
that the target for domestic carbon saving has been reduced, your
job has just got a lot easier?
Mr Sellwood: It is not, actually,
because we are in the process of putting into place quite sophisticated
partnering arrangements within supply chains, and you could say,
well, we could take our foot off the accelerator and coast a bit.
But, because, as I said earlier, there is so much emphasis on
two or three major things which need to be delivered, our concern
is that if one or two of those major things are missed, like the
cavity wall insulation target, we could run round and create huge
amounts of activity in other areas but it would not make up the
shortfall. I suppose, in the short term, the answer to your question
is, yes, it would, but actually sitting here reflecting back on
the target then I think it would not be easier.
Dr Eyre: I think, Chairman, we
will want to take a more helpful approach to Government. Reflecting
on the points which were made by colleagues in the Carbon Trust
about the likely gap in the Climate Change Programme, I think
we will want to stand ready to help Government raise this target
back up to five million tonnes, or higher, when it feels that
is necessary, when it reviews the Climate Change Programme.
Q375 Chairman: I am sorry, I do not understand
this. The target has come down, you are worried about a whole
lot of issues which are going to make it very difficult to fulfil
the ambitions which you set yourselves. If the target had remained
where it was you would have missed it, if you were going to miss
it, by an even wider margin than you are likely to miss the reduced
targets, surely?
Mr Sellwood: No. That is assuming
you think the figures are correct in the first place.
Dr Eyre: No. We are very confident
that the policy measures are in place to deliver the 4.2 million
tonnes, the new aim in the Action Plan. Indeed, because of the
issue about white goods, we are confident that the policy measures
in place will deliver more than 4.2 million tonnes. If it were
still at five there would be challenges and it would require the
Energy Efficiency Commitment to be increased and some additional
measures to be put in place. We think that is the sort of challenging
but achievable target that Government should be setting within
the Action Plan if it is to deliver on its broader goals that
are set out in the Energy White Paper.
Q376 Joan Walley: You still have not
said, in reply to Mr Challen's question, why you think Government
has reduced it from five to 4.2?
Dr Eyre: That is because honestly
we do not know.
Q377 Joan Walley: Have you made any attempts
to find out? Have you spoken to the civil servants about it?
Dr Eyre: We are beginning to do
that, yes.
Q378 Joan Walley: You have not got any
theories of your own as to why this has happened?
Mr Sellwood: My view is that we
want to operate only on the facts, and the facts are that until
we were sure of our own facts I think it would have been a bit
previous to be talking to Government about how wrong they had
got the figures. Certainly, now that we are confident of the figures
that we have, we will be going back to Government to help them
readdress that target.
Q379 Joan Walley: Am I not right in thinking
that this is going to be considered in legislation tomorrow?
Dr Eyre: We do not think that
any more primary legislation is needed, other than the legislation
which is being discussed on the Home Condition Report within the
Housing Bill. The primary legislation for Building Regulations,
the primary legislation for the Energy Efficiency Commitment is
already in place.
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