Examination of Witnesses (Questions 380-399)|
TUESDAY 20 NOVEMBER 2001
380. Mind you, there is a problem with that,
and my colleague will come in, in a moment, of having a sponsoring
department which also has a kind of regulating function as well;
we have seen in recent years that the British system of public
administration does not seem to be able to handle these two balls
in the air simultaneously, when we look at agriculture and parts
of the Health Service, and things like that?
(Dr Finer) That is absolutely right; so we would not
see this authority as having a sponsorship role, it would be setting
381. Dr Finer, in your submission to this Committee
you said you fear the high cost of bringing in renewables to the
market, yet you seem to support the uneconomic case for nuclear
power. Could you say, why do you fear the cost will be high for
renewables, and by how much it will be, compared from traditional
sources, and yet give strong support to nuclear power?
(Mr Wey) I think our concern about the
Renewables Obligation is that, yes, it certainly will add costs
to the present consumers of electricity; but we also feel that
that is giving perhaps the renewables an advantage, certainly
an incentive to develop new technology, and we are concerned that
the benefits of that new technology should eventually force down
the price of renewables. At the same time, there is a lack of
incentive perhaps to improving the technology with regard to nuclear,
and we feel that this is a very important aspect; nuclear is going
to be phased out, it is a very important part of our supply, and
we are a little bit concerned that the development of renewables
may not be sufficient to bridge the gap, certainly as we see the
likely supply of indigenous gas declining. So we are concerned,
I think, that we see new technology perhaps trying to cope with
some of the problems that nuclear generation has, certainly disposal
of waste we recognise as a problem, we recognise that there are
also high costs to this, but I think we are a little bit concerned
that the field is a little bit weighted towards the development
of renewables just at the moment.
382. But nuclear power in the past has enjoyed
a great deal of support, a lot of financial support, so why do
you object to renewables getting the same sort of support, at
least to get them off the ground?
(Mr Wey) I am not so sure that we object to it; in
a sense, we are concerned that it is going to be loading on the
costs to the UK consumer, particularly the industrial consumer.
I think that is a concern that
383. How much do you think would be the cost;
have you made any calculations, have you made any estimates?
(Mr Wey) Of the order of £15 million to £40
million a year, of that kind of order; it will rise, as the proportion
of renewables rises from 3 per cent to about 10 per cent then
that will progressively look for higher-cost sources of renewables
and the cost of that burden is likely to rise.
384. And what will that mean, in real terms,
for electricity prices?
(Mr Wey) It could be of the order of
a 1 or 2 per cent rise, we are a little bit uncertain. I think
the concern is that that is something that we are going to have
to bear, in the UK, and that our competitors on the continent
are not going to be bearing perhaps the same burdens.
(Mr Green) I think our concern, Chairman, is that
the bottom line is competitiveness, we have got to be competitive.
On energy bills and electricity bills, at the moment, we have
the Fossil Fuel Levy, the Climate Change Levy, there is going
to be a Renewables Obligation; it cannot go on, otherwise we would
not be in business.
385. But you cannot say what would be the actual
cost on electricity prices, you have no figures for that extra
(Mr Green) We can calculate the figures, and we can
send you a note on that. I think they fall out of the document
on renewables; it is probably going to rise to about £1/MWH
386. But is it not the case that if the argument
for a Renewables Obligation is that we will be able to benefit
from, in the shorthand, green electricity, which initially is
expensive, because the technologies are fairly original and as
yet unproven, in some instances, but where they are proven there
is not yet the level of demand which will afford the economies
of scale which, in fact, rather than increase price, Mr Wey, may
well reduce price, there will be a hump, but after that it will
(Mr Wey) I think that was a concern, that we should
see the benefits of renewables technology actually filter down
to the consumers; but the details of the Renewables Obligation
have a cash-out price of £30/MWH, and there is a mechanism
within that application for that to be ratcheted up and not to
be ratcheted down. So I think we are a little bit concerned that
that should be open to review.
387. If we can just turn to Combined Heat and
Power, there is quite a strong emphasis in your paper on your
support for CHP, and I think you say that your industry accounts
for 20 per cent of CHP capacity. You say that it is projected
to account for 20 per cent of energy-efficiency improvements up
to 2010; what is that based on?
(Mr Sturgeon) It is based on our Climate Change Agreement
with DEFRA; the Climate Change Agreement targets an 18 per cent
efficiency improvement, 1998-2010; now that 20 per cent contribution
from CHP is in relation to the 18 per cent.
388. Right; and you think that is fairly robust,
you are on target to achieve that, you think?
(Mr Sturgeon) We think we are, yes; we hope our members'
plans on that are very firm. I think, to a certain extent, the
projects moving further away from the current period involve a
certain degree of faith, given the current economics for CHP;
so I think, if the current economics were to stay as unfavourable
as they are, there could be a danger of some of those projects
later on being postponed or cancelled. So I think that 20 per
cent is part of a challenging target, which is our Climate Change
Agreement target, and some of the later projects, for which the
capital has not been sanctioned yet, could be an expression of
faith, if the current conditions continue to apply later on.
389. I recognise I am asking you to crystal
ball gaze a bit here, because we are talking about the future,
but it is something obviously you have signed up to an agreement
to, so you will have to crystal ball gaze a bit yourselves as
well. Given the current state of CHP and the apparent barriers
to the development of CHP, if they stay in place, would you say
it is more likely that you will not reach that target than that
you will reach it, as things stand at the moment?
(Mr Sturgeon) There is a danger we might not, if the
conditions continue as they are.
390. What do you think it would take to make
it more reliable that you would reach that target?
(Mr Sturgeon) I think there are incentives
in place for CHP, there is potential for those to be extended
slightly further. At the moment, exports of CHP to the Grid are
not CCL-free; now that would help to incentivise CHP further,
if they could be made CCL-free. In addition, Enhanced Capital
Allowances do apply to CHP, but not where the CHP is leased. So
I think those are two areas where further incentives could be
given to CHP. At the end of the day, the other problem is a basic
one of economics, that gas prices have risen and electricity prices
have fallen; that is where clearly we need help.
(Dr Finer) At the end of the day, our own members
have signed up to these Climate Change Agreements with the Government
and they have got to meet them one way or another or lose the
rebate from the Levy; so they will have every incentive either
to do the project or find some other way of meeting their targets.
391. Can I go back to the Climate Change Levy
and environmental issues. You seem to say, in your evidence, you
accept that the Government has to adapt its energy policy to take
environmental considerations on board, but you do seem basically
to dislike the measures, such as the Climate Change Levy and the
Renewables Obligation, those measures which have been put in place.
What would you see as an alternative means to achieve those ends?
(Dr Finer) We are quite keen on emissions trading,
we think an emissions trading regime is inherently a good idea,
and to the extent that one had to be designed to fit on the top
of the Climate Change Levy regime, which we already have, we support
what the Government has been doing on that. We were not actually
opposed to the principle behind the Climate Change Levy itself,
it was more the way it was implemented that really worried us.
We had an alternative proposal, which, in a nutshell, was that
anybody who wanted to should be eligible for a rebate on the Levy,
a full rebate, in exchange for entering into an agreement; that
would have been pretty straightforward. A lot of the problems
are caused by the artificial barriers between those who are eligible
for the rebate and those who are not, those who are eligible being
the ones who are governed by the Integrated Pollution Prevention
and Control regime; and we found, within member company sites,
for example, that some parts of the site are eligible and some
parts are not, and this gives rise to huge burdens of bureaucracy.
It is the level of detail that we are concerned about, more than
392. In part, you have probably answered this,
because I notice, on page 2 of your evidence, you highlight the
Association's acceptance of the Climate Change Agreement with
the Government, but then you also highlight the vehement opposition
of the industry to the introduction of the Climate Change Levy.
Is that what you have just touched on now? Effectively, it seems
a strange dichotomy?
(Dr Finer) I think a lot of our initial concerns were
met. Initially, when it was first mooted, the rates of the Levy
were different from the way they turned out in the end, and the
percentage of rebate was different from the way it turned out
in the end; also, there were various concessions that the Government
granted, in terms of exclusion from the Levy, like the production
of chlorine, by chloralkali electrolysis. So, as it turned out
in the end, we were really not too unhappy with it, except at
this level of bureaucratic detail; it was the original proposals
that we opposed.
(Mr Green) Could I just add, Mrs Lawrence, that I
think there is no way we wish to abrogate any responsibilities.
Prior to the Climate Change Levy, the Chemical Industries Association
did have a voluntary agreement, in which we had set targets and
were well on the way to achieving those. I think our main concern
is that energy can be too easy a target. If you are looking, as
a country, to meet Kyoto targets, you have got a number of sectors,
there is transport, energy, other sectors; you do not need to
discriminate, really, you need to be sure that you are going to
just meet it all.
(Mr Wey) May I comment on that, to say that, at the
end of the day, we are a global industry and we are competing
in global markets, and our fundamental concerns, I think, relate
to the rate at which we are increasing our burdens on industry
through additional energy taxes and our competitors are not; and
all the time that is happening we are losing our place in the
Sir Robert Smith
393. Can I quickly check; given that Kyoto was
the declared aim, do you think if it had been based on carbon
use rather than energy use it would have been slightly more palatable?
(Mr Wey) Yes.
394. I just wonder how many members of your
Association, as they feel so strongly and you are putting the
case so strongly, have moved abroad and are now operating in standards
which are much different from here and are adding to the problems
for the world, rather than reducing the problems for the world,
from them being posted overseas?
(Dr Finer) You do not see step changes, or very rarely
do you see step changes, you do not very often see a company shut
down a site in the UK and open another one somewhere else. What
happens is that when there are marginal decisions about investment
then people make the decisions and they invest elsewhere compared
with here. And there are examples, for example, bits of the pharmaceutical
industry have moved from the UK to Ireland, because of different
395. That is tax breaks, is it not; that is
not down to this?
(Dr Finer) This is for all industry.
396. And you are putting the case, very strongly,
you are under the cosh, the pressure is on, you cannot cope; how
many are running fuel factories where, in your view, they will
close down the operation here and ensure that the operation goes
ahead abroad, because of the savings that will be made, but, at
the end of the day, that will do nothing for the environment because
the standards are not the same?
(Dr Finer) I do not think I could say that this single
factor on its own will lead to any change of that sort, it would
always be a combination of lots of factors. So I cannot honestly
say there is a single case which is solely due to this, that I
am aware of.
397. So it is not quite as bad as you are saying
(Dr Finer) I do not think I ever said that, Mr Hoyle.
398. Dr Finer, what would you like the Government
to change regarding the Climate Change Levy, if there was one
thing you would like them to change at this moment in time?
(Dr Finer) To change the eligibility requirement for
the rebate, so that anybody who is prepared to sign an energy
efficiency agreement is eligible for the rebate.
399. In terms of energy conservation, what evidence
do you have to support your assertion that UK electricity prices
are skewed more towards final consumers here than elsewhere in
(Dr Finer) We do actually have some data. From our
own data, if we look at gas prices, if you take the ratio of large
industrial consumers to domestic, sorry, the other way around,
and base it as 1 for the UK, then the average for the continent
is 1.5, and for electricity the average for the continent is 1.45;
and within that range obviously there are some countries that
are higher than that and some lower.