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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 1025-iii
HOUSE OF COMMONS
TAKEN BEFORE THE
Environmental Audit Committee
Wednesday 23 November 2011
Dr Gordon Edge, Dr John Constable and Dr Alex Bowen
David Powell, Molly Scott Cato and Philip Pearson
Evidence heard in Public Questions 50 - 115
USE OF THE TRANSCRIPT
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Taken before the Environmental Audit Committee
on Wednesday 23 November 2011
Joan Walley (Chair)
Dr Alan Whitehead
Examination of Witnesses
Witnesses: Dr Gordon Edge, Director of Policy, Renewable UK, Dr John Constable, Director, Renewable Energy Foundation, Dr Alex Bowen, Principal Research Fellow, Grantham Research Institute on Climate Change and the Environment, gave evidence.
Q50 Chair: Welcome to all three of you. As well as giving you a warm welcome this afternoon, we should explain that we are on a very tight schedule and we have a lot of ground to cover. We realise that perhaps we will have to cut short some of the session or some of the answers. At least, if we can have regard to that, we might make some real progress. So again, thank you very much indeed for coming along.
Moving straight to the inquiry, we have found in the evidence that we have received that there are quite a lot of different definitions of what is meant by the "green economy." Could I invite each of you to set the session going, by perhaps, in just a couple of sentences, giving us an idea of what you mean by the green economy? Obviously, that is over and above the amount of electricity generated from renewable resources. Could I start with you, Dr Edge?
Dr Edge: Thank you. For us, it is quite simple. We do renewable energy and renewable energy is part of the green economy. You could argue that our jobs are deep green, very clearly green; other parts of the economy need to be greened, perhaps a lighter green.
Dr Bowen: A green economy is one that fosters sustainable development and growth. It is one where the needs of current generations are not fulfilled at the cost of future generations; in particular, a green economy is a low-carbon economy and it is moving to a more secure and less risky economy.
Dr Constable: I would answer in two ways: firstly, there is the theoretical definition, which Dr Bowen has sketched, the Brundtland definition; the practical definition is what sort of green economy is actually going to result from the current policy sets. So when I write about it, or comment on it, I have the distinction very closely in mind. There is the theoretical, which is desirable, and then there is the actual likelihood, the reality.
Q51 Chair: Can I just press you each a little bit further? None of you has mentioned social issues or the intergenerational aspects, or indeed improved well-being and equality, and I wonder whether or not you would include that in the definition?
Dr Bowen: Shall I go first?
Dr Bowen: When I speak about a sustainable economy and sustainable growth, certainly, I have in mind one in which natural resources-in particular, the environment-are treated in a better way. There is more concern for broader aspects of the well-being of society, not simply the measures that one can include in gross domestic product. I would also say in passing that is one aspect that makes it very difficult to put a figure on the green economy, or define it with respect to national income accounts, because as good as they are for some purposes, they do not include measures of welfare associated with a lot of environmental services and benefits.
Q52 Caroline Lucas: On that point, Dr Bowen, I want to get to the heart of the issue. You talk about sustainable growth, and I want to ask you whether you think that it is possible to have infinite growth of natural resources on a planet with a finite number of those resources. If you do think it is possible, is it because you think that efficiency is going to be able to enable 7 or 8 billion people on the planet to live in a way that is compatible with keeping a future for the planet and our future generations?
Dr Bowen: My particular expertise, such as it is, is in climate change economics. There I think the message is that one can halt human-induced climate change without affecting properly measured growth to any great extent. So in one sense, what is possibly the biggest, most urgent environmental challenge can be tackled, while still leaving open the possibility of increased material well-being, particularly in the developing world but also for communities in the industrial world. I do think that the term "sustainable growth" makes sense; it is not an oxymoron. Looking very much further ahead at some other environmental challenges, there are questions that need to be explored a great deal more. A green economy is not just to do with fighting climate change. There are policy tools that can be used to rebalance production and consumption, and in the future I would see growth comprising much more growth in services, knowledge and nonmaterial measures of welfare.
Q53 Sheryll Murray: I would like to explore the benefits and risks of the green economy a little more. What are the main benefits of transitioning to a green economy?
Dr Edge: Looking at it through the prism of the renewable energy industry, we see multiple benefits in terms of value for the money you spend on it. You have greater stability in your energy prices. You have security because they are home-grown resources. You are able to develop indigenous industry, potentially with an export industry attached. These all come with a price tag that is not dissimilar to what you would have to pay for an alternative future, particularly with gas. So for us it is very much a value-for-money argument; you pay out but you get a big list of benefits in return.
Q54 Sheryll Murray: Do you think these benefits are well understood by Government and the public?
Dr Edge: Across Government they are coming to be well understood, though not necessarily completely across Government. In the public, we have an issue of misinformation, from a number of media outlets and certain commentators, that there is a very high cost to renewables when in fact the average bill-payer is only paying £20 towards the renewables obligation at the moment. That is looking to rise to £50 by 2017, and the new electricity market reform arrangements would reduce the cost you would have to pay on top of it from the renewables obligation. So we do not see this being a major addition to people’s bills when there are also the benefits you get, including the suppressive effects on power prices of having a large amount of fixed price renewables.
Q55 Sheryll Murray: What are the pros and cons of moving now rather than later, and are there any examples of other countries moving to a green economy and being able to demonstrate a benefit?
Dr Edge: A benefit of moving now, especially when it comes to something like offshore wind or the wave and tidal industries, is a once-in-a-technology opportunity to establish industry leadership. If we do not do it now, other countries will get that benefit and it will never come to the UK. People will be building factories in Germany and Denmark and other countries, and it will not happen here. So for us the first-mover advantage is very clear for the renewable technologies.
In terms of other countries, I do not know if they have made the whole leap to a green economy but they are certainly making strong inroads to developing their renewable energy industries. You could say that Germany is making a very strong bid for that and its economic development does not seem to be impacted as a result.
Q56 Zac Goldsmith: A major selling point of the green economy is its capacity for job creation, and my question for all of you, starting with Dr Bowen, is to what extent do you think it will deliver the level of employment that people may be hoping for?
Dr Bowen: I do not think moving towards the green economy is going to pose too many problems for the labour market, but nor do I think the argument for the green economy should rest on counting green jobs. There is an opportunity now, because of high unemployment, to undertake a backlog of labour-intensive activities that could create new jobs. What I am worried about is moving to technologies that appear to be labour intensive and therefore good for creating jobs in the short run, but that then tie you into something that has low labour productivity in the long run. So my answer has to depend on what time horizon you are looking at. We can look for job creation in the next couple of years or so if policies are well designed, but one has to be very careful about supporting inefficient or highly labour-intensive technologies down the road.
Q57 Zac Goldsmith: Are you able to quantify that in any way? From what you are saying, it sounds as if you think there could be an initial burst of activity-a burst of employment-but that as the dust settles and we develop a new form of energy capacity, it will be a slightly different story. Do you have any research that puts numbers to those assumptions?
Dr Bowen: I have not carried out quantitative research on job creation myself. I think once the macro-economic situation has improved, the best first guess of the impact on gross jobs is zero. Overall, employment is determined in the labour market by factors such as the level of wages and the performance of the macro-economy, so in the longer run, if we are able to correct the problems that we see at the moment, it is zero.
Q58 Zac Goldsmith: Is it not logical to assume that a more decentralised energy infrastructure necessarily requires more actors to be involved in it? Take solar, for example; it is not just the manufacture of the product itself, it is the fitting-every rung of the ladder. Logically you would imagine that that is going to be much better, in terms of job creation, than a handful of very large power plants.
Dr Bowen: Indeed, if one looks forward, it is likely that there will be a higher proportion of jobs in renewables, and probably in gas, electricity and water supply in general, and certainly a lot more jobs in ecosystems. But one has to take into account jobs destroyed elsewhere in the economy, and it is important not to forget the labour-intensive jobs in some traditional brown sectors of the economy.
Zac Goldsmith: I am worried about time, so I would like to come to Dr Constable. I know from your submission that costs in other sectors is something that you focused on.
Dr Constable: Yes. You asked whether there were studies that you might refer to for analysis. The European Union has conducted macro-economic modelling that suggests that even on the assumption that the European Union retains a more than 50% share of the renewable technology market worldwide, which I think is a generous assumption, the GDP and jobs benefits in the EU27 overall would be slight. That is their word, not mine; a slight benefit.
Q59 Zac Goldsmith: But I think they are still talking about hundreds of thousands, aren’t they?
Dr Constable: Yes, but the churn is enormous. You are creating very large numbers of jobs through subsidies in the green sector, but of course those subsidies have to be raised and therefore you are increasing costs elsewhere in the sector.
Q60 Zac Goldsmith: But I believe the research that you are citing is three years old, so my first question is, do you know if it has been updated?
Dr Constable: It has not been updated. The Commission continues to cite it, so I assume that it is a-
Q61 Zac Goldsmith: The second point is that I think it is also correct to say that they anticipate that there will be a net increase of hundreds of thousands of jobs, taking into account the cost to other sectors.
Dr Constable: Over the EU27 as a whole, but given the transitional risks, you have a very large churn effect, very large sums of money being dispensed in subsidy and the gains are quite small in relation to the risk. The question was asked about the benefits and risks. Generally speaking, the public is aware of the benefits as they are proposed in the theoretical definition. What they are not aware of are the risks that policies are not able to deliver that aspiration.
Q62 Zac Goldsmith: But I think it is correct to say that there are 119 countries with renewable energy targets as of the moment, according to the House of Commons Library. So 119 countries have targets that they are nowhere near meeting, which implies that someone is going to have to help them meet those targets. It is hard to imagine this not stimulating a frenzy of activity that would have a measurable impact in terms of job creation. I just wonder what data-
Dr Constable: Yes. One would have to assume their commitment to those targets was sincere and will actually carry through.
Zac Goldsmith: That is a political issue. But you are not sold. You do not believe that is the case.
Dr Constable: I think the risks are very considerable and the costs are large. Can I just point out that the subsidy costs, in 2020, for the European directed targets here in the UK would be several billion? Our most recent calculations, which we are about to publish, suggest that roughly £8 billion would have to be distributed in subsidies from consumers to renewable electricity generators. That is a very significant amount of money. It also entails integration costs for the grid and of course a VAT uplift.
Q63 Zac Goldsmith: Would you agree that the subsidies for fossil fuels are dramatically higher?
Dr Constable: In the UK that is not the case, I believe.
Zac Goldsmith: Well, globally, but the figures you are using are not just UK-based.
Dr Constable: Of course subsidies globally are of a different kind. There are subsidies from taxpayers to consumers to keep fossil fuel prices low, for example, in Iran and in Venezuela. Subsidies here are subsidies from consumers to generators, so a very different kind of economic approach.
Q64 Zac Goldsmith: Have you analysed the global subsidies? We have had global subsidies-
Dr Constable: I read the IEA work on this part of it, yes.
Zac Goldsmith: You have been down into the details, the subsidies-
Dr Constable: There are indeed direct subsidies to fossil fuel generators but not here in the UK.
Q65 Zac Goldsmith: How much emphasis has your organisation, or have you personally, put on tackling those subsidies of fossil fuels?
Dr Constable: I disapprove of subsidies to any interests in this matter. It would be better if they were not there, but one has to be realistic. Internationally, you would be trying to reduce subsidies that are keeping consumer prices down in some areas, and that would be politically very difficult for those countries to deliver.
Zac Goldsmith: Although I think Iran is now tackling that.
Dr Constable: And one wishes them luck.
Zac Goldsmith: Iran has a very bullish programme to phase out the subsidies.
Dr Constable: Excellent.
Q66 Zac Goldsmith: But on this issue of subsidies, I believe your organisation is enthusiastic about the role of nuclear power, and I just wonder what your view is in relation to subsidies for that sector?
Dr Constable: We are not enthusiastic about the role of nuclear power. We accept that it is quite likely the UK will need a nuclear component. I am not enthusiastic about it; I am more or less resigned to it. I think it is quite a long way off. I do not approve of subsidies to any industrial sector.
Q67 Zac Goldsmith: Do you believe that nuclear can exist without subsidies?
Dr Constable: I am not an expert on the economics of nuclear and could not comment.
Zac Goldsmith: But you would be as opposed to the use of subsidies for nuclear power?
Dr Constable: For market distortions of all kinds. I take a consumer perspective on this matter. Distortions of all kind are not in the consumer interest and I would disapprove of them.
Zac Goldsmith: Dr Edge?
Dr Edge: Yes, I would like to respond to some of those points about subsidy. Incidentally, on my understanding, the analysis that the Renewable Energy Foundation have published does not make assumptions about reductions in subsidy over time, and as we have seen with the proposals for the renewables obligation banding, there is a degression in the subsidy being put forward for our technologies, and certainly with the electricity market reform contract difference that would certainly reduce still further. You are seeing an uplift from the power price to a fixed strike price. So the level of subsidy will be considerably less than Dr Constable implies and-to go back to my earlier point-that buys you a reduction in the wholesale power price through what we call the merit order effect. It gives you benefits in terms of employment and industry, and these are things that are not factored into that calculation.
Dr Constable: Could I comment on the subsidy? We did take the degression effect into account in our latest calculations. It is very modest, by the way. It is a 10% reduction in subsidy for onshore. So it is a modest reduction. If there are future degressions, well, they are to be welcomed but I see no sign of them at present.
Zac Goldsmith: But the figure that you have used here-
Chair: Sorry, I don’t think Dr Edge had actually finished, had you?
Dr Edge: I have finished that point.
Chair: Did you want to come in, Dr Bowen?
Dr Bowen: Yes, I wanted to make a couple of points here. First, I would not agree with Dr Constable that we do not have subsidies in developed countries. They may not be quite as transparent, but in the UK the reduced rate of VAT on domestic energy usage is a subsidy to energy, and that is largely to fossil energy. There are lots of distortions within UK energy prices, some of which constitute effective subsidies.
The second point is to think about why one might, in some circumstances, want to offer subsidies. There are some benefits, particularly if you are supporting innovative infant technologies and also if you are managing to derisk speculative investments, again in infant technologies. I think that is the intellectual basis for having a coherent set of subsidies that are time limited and targeted at innovation.
Q68 Zac Goldsmith: Yes. I think this point about the purpose of subsidies is really important, and I am interested in Dr Constable’s view. Historically, subsidies have been used to enable fledgling technologies on to the market. They are not normally designed to support sectors that will then require them for ever; nuclear is an exception because it continues to require the same level of subsidies as it always has. But with solar, the predictions suggest that it will be able to reach parity within eight years. Surely that is exactly what subsidies exist to do?
Dr Constable: But that is not the way the subsidy programmes are designed. They are designed to deliver deployment and, therefore, to meet arbitrary targets.
Q69 Zac Goldsmith: But that is not my question. I am stepping back a little. Earlier you expressed absolute opposition to the very possibility of using subsidies in relation to the energy sector, so I am saying that if they were correctly deployed-
Dr Constable: Time-limited research and development grants have some justification, but one has doubts about their effectiveness if you are going to do that. But longterm income support to encourage widespread deployment to meet an arbitrary target strikes me as very unwise and economically damaging. Can I return to the point about differential VAT?
Q70 Zac Goldsmith: The logical extension of your opposition is that we would never have any new forms of energy at all.
Dr Constable: Maybe not.
Q71 Zac Goldsmith: Yes, solar requires heavy subsidy at the moment. If it is the case that in eight years’ time it will not-I accept that it is a big "if"-that is an extraordinary success story that would not have been possible without clever use of subsidies.
Dr Constable: You certainly do not need subsidies to draw in new forms. When there is a market opportunity a new energy source will enter the market very rapidly. The development of gas-fired electricity generation is a case in point-a very rapid uptake because it was fundamentally economic and attractive to do so. I suspect that if fossil fuel prices do rise, as the Secretary of State seems to assume in today’s energy statement, there will be spontaneous uptake and spontaneous development in the renewable sector, which will be much healthier than the hothouse development that we currently have. We are already seeing cases where renewable energy companies are growing too fast and falling over; the Proven wind turbine company in Scotland is a very good example. It grew very, very rapidly, deploying between 500 and 600 devices, but a type error was found and that company collapsed overnight. If it had been allowed to grow organically it would have discovered that error much earlier. It would have had a smaller install-based fix and they would not have had to sack 50 people. Now that is the kind of hothouse, over-rapid growth that we need to avoid in the renewable energy sector.
Dr Edge: I find it very difficult to believe that companies like Siemens and GE investors will fall over through over rapid growth. I think this is a very spurious argument that Dr Constable has put forward. How we are going to get cost reductions if we do not deploy at mass scale completely escapes me, and therefore you have to support development into the market against technologies that have been established for up to 100 years. It is very difficult to see how you are going to do that, while you also have the market failure of those technologies not paying the full cost of their external-
Chair: I am going to leave it at that for now because we need to move on.
Q72 Caroline Lucas: I want to go back to something that Dr Edge was talking about; he mentioned the importance of the UK gaining first-mover advantage, in terms of maximising our introduction of renewables right now. Some people would say that to expect industry in the UK to capture global markets in renewables is not realistic given the cheaper labour costs in places like China. How would you respond to that?
Dr Edge: Certainly, with something like offshore wind, one has to bear in mind the very large pieces of equipment that you would have to be shipping halfway round the world. I do not necessarily see the argument for doing that. I do not think the benefits you would get from production in China would outweigh the logistical and transport costs. But bear in mind that what we are talking about is not just the equipment; it is developing a technology lead, an expertise lead, so that the UK becomes the place you want to come if you are going to develop your resources. In the UK, we have expertise, we have technology leadership, we have the kind of intellectual property with which to export to the rest of the world, as well as equipment itself. So being the European hub for manufacture for offshore wind would have benefits, but globally we are talking much more about the intellectual exports as well.
Q73 Caroline Lucas: What conditions do we need to foster in this country to become that hub, in your view?
Dr Edge: We need to be really clear that we are going to be the number one market and about the scale of that market, so that companies can say, "Yes, we are going to invest. We can see a five, 10, 15 year horizon of demand for our products that we can also export elsewhere." It is particularly important that the electricity market reform process gives a good and clear result soon because those companies will be making these decisions in the near future.
Q74 Caroline Lucas: Given that 70% of all solar panels that are installed-even somewhere like Germany that has been ahead of the game on this for a long time-were manufactured in China, what hopes do we have of moving to a position where we could be manufacturing them closer to home and reaping the benefits that would come from that?
Dr Edge: Solar panels are really easy to transport and with the mass benefits of production in China, it is like producing iPods; it is a very similar kind of argument. For heavy electrical engineering, like large offshore wind turbines of several hundred tonnes apiece, it makes much more sense to be capturing and manufacturing those closer to your market in order to park them straight on a delivery vessel and take them to site. It is much more likely that those kinds of technologies will be made closer to where they are needed.
Dr Bowen: There is a danger here in focusing too much on traditional manufacturing. We have all said that the green economy will see pervasive changes, so we should not just focus on narrowly defined sectors that are very obviously in the green economy. Some UK sectors are already doing well by having a lot of green inventions compared with their international competitors. Some data from colleagues of mine at the LSE suggest, for instance, service activities relating to printing, wood products. These are not things that you necessarily think of immediately as part of the transition to the green economy, but they are areas where British firms are doing more green innovation, relative to average, and they are doing relatively well in trade.
Unfortunately the picture is not uniform. For instance, one of our most successful industries, the pharmaceutical industry, has relatively low green patents compared with the pharmaceutical industry in other countries, and it would be good to see them doing more green innovation. We need to look much more widely across the economy. There are opportunities all over the place if we get the incentives right. I do not think anybody yet has mentioned carbon pricing. I think we need that much more than we need subsidies for renewable energy.
Dr Constable: Dr Bowen makes a valuable point about opportunities not necessarily being in heavy manufacturing. I am thinking particularly of integration of renewables into a stable electricity system, which is extremely difficult and at present very expensive. However, the market signals to innovators in the integration sector are very weak, since the integration costs are socialised and therefore nobody has a particular interest in attempting to remedy that problem.
One could look internationally at this problem. I notice that a major energy storage venture in the United States, Beacon, a flywheel company, have gone bust. I do not know the details of Beacon; there may be very good reasons why it did not survive. But it is at least interesting that in an area where renewables are creating additional system costs, and there is genuinely an opportunity to reduce those costs, there is very little activity, and perhaps de-socialisation of those costs would provide necessary market savings.
Dr Edge: The idea that there is very little activity in dealing with the variability of wind power is, frankly, laughable. The analysis from the Committee on Climate Change said that even with 65% of our electricity from variable renewables, the additional cost would be 1 penny per kilowatt hour. This is entirely manageable. With the time we have, we will have the ability to bring forward the technical solutions for it, the interconnection demand side response. These are all things that are in train, and they will happen and will allow us to manage that kind of variability. It is not the show-stopper that the Renewable Energy Foundation would have us believe.
Dr Constable: It is not just us. You could consult work by Mr Gibson, formerly Power Network Director with the National Grid.
Dr Edge: All right-National Grid, who are very much in favour and bringing forward proposals-
Chair: I don’t think you can talk across each other.
Dr Edge: I am sorry. National Grid has consulted and it is very much in line with the operation of the grid, the 20%, 30% variable renewables. It can be done at a reasonable cost.
Dr Constable: But by what date?
Dr Edge: By 2020.
Dr Constable: I draw your attention to work by Mr Gibson, former Power Networks Director at National Grid, recently published by the Institute of Engineering and Shipbuilders in Scotland, suggesting that the overall integration costs for onshore and offshore wind will be between £60 and £65 per megawatt hour.
Chair: It goes without saying that if any of you wish to provide any further written evidence, of course, the Committee will be pleased to accept that, but we must move on.
Q75 Caroline Nokes: Many of us are very conscious, at a time when people are quite financially stressed, of the potential downsides of rising energy bills with the green economy. Are there any other downsides that you think we should be aware of, and have you any suggestions as to how a green economy could be devised that did not require higher energy bills?
Dr Edge: You are going to have higher energy bills whatever you do, because the alternative is to depend on gas imports, and that will increase the prices of energy quite significantly. Certainly what we need to do is also emphasise the efficiency side of this. To keep bills stable we need to use less energy, even though the unit price of that energy will go up, because it will. The benefit of moving to a green economy on this one is that, instead of exporting that price to places like Qatar or Algeria, you are having home-grown energy with home-grown technologies and companies benefiting from that.
Dr Bowen: But one needs to remember that measures to price carbon to make the polluter pay can push down relative prices elsewhere in the economy. So although there may be a rise in the relative real price of energy, it is possible that some other parts of what people spend money on will get cheaper. Nevertheless I think that it is the case that unit prices for electricity will rise, for instance. But there are several suggestions around as to how the impact of that, on low income families in particular, could be mitigated. One possibility, for instance, is using a price index for low income families to uprate benefits. On the whole, low income families do spend a larger proportion of their income on energy. A price index that reflected that would allow benefits to go up when carbon prices or world prices for energy went up.
Q76 Chair: Sorry, can I interrupt?
Dr Bowen: Sure.
Chair: For that to happen who would have to do what?
Dr Bowen: The Government would have to agree to use a different price index to upgrade relevant benefits, such as the universal credit when that is introduced. We have had a pensioner price index. There is scope for a wider range of price indices tailored to the relevant benefits that are paid, and of course this is an issue that will need to be addressed anyway when thinking about how to upgrade any revised welfare payments.
I was about to say that another option is to focus very much on the pricing strategies of energy utilities. One possibility that has been raised is requiring utilities to offer lower unit prices for the first slice of energy used, so you are not affecting incentives at the margin that economists worry about-you are still encouraging people to use less energy-but you are giving people a rebate on the first slice of energy that they are using. That is likely to require regulatory intervention because it is not the way that energy utilities currently price.
Dr Constable: The question was whether there are any other risks that are not related to the direct impact. I think one is that the buffering effect in relation to fossils may not realise in quite the way that we wish it to. Bearing in mind that renewable outputs will fluctuate year on year quite considerably, your average over a 10-year period may mean that you have met your target, but the reality is the actual quantum on a yearly basis may vary quite a lot. That implies that we may therefore become more exposed to the spot markets for fossil fuels, and that may not necessarily be economically advantageous. I do not know of any rigorous work on this yet; it is an emerging area. We knew only relatively recently that wind-flow factors fluctuate very considerably year on year; 2010 was a very low year indeed, for example.
Q77 Dr Whitehead: To explore that point briefly, what effect does the wider spread lateral deployment of renewables have on variables within the particular year? You can have variability within a particular year if you have a relatively narrow base of deployment, but if you have a wider base of deployment in different places or grid connected, for example, between different locations, presumably that variation reduces considerably. Is that right?
Dr Constable: There is less variation year on year on our measurements of load factor offshore and onshore, so very heavy deployment offshore might produce less variable output year on year. However, the UK is quite a small place so I am afraid that low wind conditions, for example, tend to prevail over the entire area on an annual basis. If it is a lowwind year north of Scotland it is going to be a low-wind year elsewhere in the United Kingdom.
Q78 Dr Whitehead: That is meteorologically correct, is it?
Dr Constable: It is a very small area. There will be some-
Dr Whitehead: It is also a very windy area, as it happens, with enormous variations in wind patterns, and continuous pulses of wind coming across from the Atlantic.
Dr Constable: Nevertheless, the observations in 2010, when the wind flow is reasonably distributed, suggest that there will be significant variations from year to year.
Q79 Chair: Whose observations were they?
Dr Constable: They are derived from the Ofgem subsidy claims-the renewables obligation data.
Q80 Dr Whitehead: It has been claimed that the Government’s transition programme, the key policy document on looking at transition to the green economy, takes a passive role. One of the claims suggests that it is about creating conditions for others to develop the green economy rather than in any way looking at the Government role in this. Is that a fair criticism, do you think, of that document?
Dr Edge: My observation about that document is that it is quite slight; it is really a collection of what Government is doing in this area, across the board. There did not seem to me to be an overarching kind of impetus towards a comprehensively green economy. It is just taking slices from Energy and Climate Change, or Defra or wherever, and putting them together. It is a hotchpotch: "Here you go, that’s our transition to a green economy." I am not seeing a great, overarching mind behind this and a great vision of where it is going.
Dr Whitehead: What do you think, Dr Bowen?
Dr Bowen: I am a little more sympathetic to it and to the general thrust of Government policy, in the following sense. It is important to have clear, credible, long-term goals, and I think the system of carbon budgets in the UK is a very good system. The fact that there is the independent UK Committee on Climate Change is excellent, and I hope the Committee holds the Government’s feet to the fire on achieving the transformation that it wants to achieve. There is systematic intervention in a lot of areas of the economy where action is needed, with the climate change levy and other forms of carbon prices, and some support for renewables in addition to that.
Where I am a little critical is that I think it is piecemeal, and I do not think that the individual interventions have necessarily been designed as part of an overall piece. Some work that I did for the OECD, for instance, confirmed work that the Institute of Fiscal Studies and others have done that implicit carbon pricing across the economy is all over the place. It is very, very low in some parts; it is very, very high in other parts. It is very difficult to see the rationale for the variations.
I think the Government is pointing in the right direction. It is undertaking a lot of sensible actions. I would like more pervasive but simpler policies, so it is not just do more but it is do things in a more pervasive and consistent way but perhaps with less detail. So, for instance, one carbon price for the economy rather than intervening in lots of different parts of the economy on lots of different pretexts and ending up with a degree of incoherence.
Dr Constable: I very much agree with that. The policies are too numerous; they are conflicting and, as Dr Bowen says, they imply several different prices of carbon. What we need is a policy that is rather more abstract, less intrusive, with less attempt to plan into the future but simply specifying the abstract properties of the energy sector that are desired at some time in the future. You then allow the neural network of the biddable market to find the cheapest routes to those abstract properties. At present the policies reach too deep into the economy although in a rather overlapping and conflicting way.
Dr Edge: I would agree and disagree with that, in that having a clear carbon price would be beneficial but one must bear in mind that the objectives of, for instance, developing the renewable energy industry are not just purely about carbon. There are multiple objectives. Therefore, that could be reflected in additional benefit and additional support in order to bring them forward. So while a coherent carbon price is a good thing, it should not be the only thing that we have in our policy locker.
Q81 Dr Whitehead: The transition to the green economy programme mentions fiscal measures, including increasing the proportion of environmental taxes. In your view, is that an important part of the extent to which Government might be seen as intervening in the process?
Dr Edge: Given the amount of criticism about environmental levies in the Power Bill, we are not going to go any further with taxes in the power sector to meet these aims. It may be that other forms of environmental taxation might increase-a landfill tax or other similar kinds of measures, who knows?-but when it comes to energy we are not going to have any more measures on top of what we already have.
Q82 Dr Whitehead: The implication is a transfer of taxation from goods to bads, i.e. a proportionate increase in green taxation and an implied decrease in the proportion of taxes in other areas where you wish to stimulate activity in those areas but where you wish to change behaviour in other areas.
Dr Edge: That would be good, but one should bear in mind that the downside of that is if people respond to that taxation message and do less of the bads your taxation income comes down and you have to get it from somewhere else.
Chair: I think Dr Constable wants to come in, and then I will bring in Zac Goldsmith briefly.
Dr Constable: I think it is a good idea to look towards a single tax instrument, but we have to be realistic about the burden placed on the consumer and the likelihood of provoking consumer rebellion. If you wish to have a long-term future for this sector what you do not want are very heavy burdens within the next 10 to 20 years, which might provoke consumer resistance, and at present that is exactly what you have. The consumer burdens are high. Lord Marland gave an answer in the House of Lords recently about the total cost of environmental levies. It was over £12 billion, since 2002, of which about £7 billion was from the renewables obligation. These are set to grow, and I suggest to you that they are of sufficient scale to provoke consumer rebellion and it would be very wise, in the interests of the future of a green economy, to attempt to reduce those burdens very significantly.
Dr Edge: What we would see as increasing burdens on consumers has been the price of gas; £20 for the renewables obligation is not much compared to the massive hundreds of pounds increase that we have seen through the price of gas. I think this is another spurious argument from Dr Constable. We think we have seen a lot of criticism in the press about the impact on bills when the impact on bills is entirely about the price of gas. We should get real about this and realise that going to renewables gets us away from the impact of volatile gas.
Q83 Dr Whitehead: Why do you think the Government is presently rewriting the definition of what a green tax is and moving away from the ONS definition, which is essentially across the whole of Europe and the OECD? Is it to enhance the level of green taxes, do you think?
Chair: Dr Bowen?
Dr Bowen: I have no idea. I would much prefer that Governments stuck to international standards of measurement, and then it is much easier to see what is going on. On the basis of comparable OECD statistics, the UK does not have particularly high environmental taxes. There are one or two areas, like road fuel duty, where we do have very high rates. But across the board we do not use environmental taxes as much as a number of our European friends. I would echo Dr Edge’s point that environmental taxes are designed to try to change behaviour. They have been very successful with, for instance, the landfill levy in this country. The climate change levy has had some good effects, even if its design is not ideal. But good effects mean reduced bad activities.
Nevertheless, there is scope for broader environmental taxation, and I would like to see some of that used to reduce taxes on labour. If one were able to do that, most of the economic modelling suggests that we could get some net job creation. So returning to the point that was raised earlier, depending on how you run your policy you could end up with net job creation, even in the long run.
Q84 Zac Goldsmith: Dr Constable, relating to the last point you made, we have roughly a £100 billion bill to deal with nuclear waste from the legacy that we have at the moment-the existing waste. We have figures suggesting that $0.5 trillion is spent every year subsidising fossil fuels, and many people think that our foreign policy trips ought to be added to that, since there is almost certainly an oil connection. Why do you think that the consumer backlash, as you described it-the anger-relates to what is in real terms a very, very small fraction of those much larger costs? Why do you think that those smaller costs receive such disproportionate hostility?
Dr Constable: You refer to the subsidies internationally, and again I remind you there are very few here. There is the differential rate of VAT that Dr Bowen mentioned earlier, which applies equally to renewables and to others. There is also red diesel of course. But those subsidies internationally are of a completely different kind, so you are talking here about de-risking investments in the United Kingdom at the consumers’ expense. Those total costs will be very significant. They are already significant. They will be very significant by 2020 and they are an open-ended commitment. Why are people concerned about it? Because they-
Q85 Zac Goldsmith: Just for the record, I want to interrupt you for a second because you are dismissing the concept or the very possibility that we engage in fossil fuel subsidies in this country, but we do in all kinds of ways. We have an Export Credits Guarantee Department, for example-whose name has just been changed, I can’t remember what to-which guarantees many tens of billions of pounds’ worth of investment in fossil fuels, as just one example. Our contribution-
Dr Constable: Overseas.
Zac Goldsmith: Overseas, but this is our money, this is not charity. This is investment to buy, backed up by the British taxpayer in order to maintain dependence on fossil fuels.
Dr Constable: To support industrial interests in the United Kingdom.
Zac Goldsmith: We have contributions also. But these are fossil fuel subsidies. Underwriting investment, de-risking an investment is a fossil fuel subsidy. If you look at all these different subsidies, it just seems to me that the figures that you are quoting-I can’t go into the details, I can’t question these figures in relation to renewable energy subsidies because I haven’t done the maths, but whatever-are a tiny fraction of these much larger subsidies that I am talking about now. I just wonder why it is that you, despite your general opposition to subsidies, reserve such hostility towards what is relatively a very small sector. It makes me wonder where you are coming from and what your organisation exists to do.
Dr Constable: It is not a relatively small sector. The total subsidies to renewables in 2020 will be roughly equivalent to 1% of GDP, and this is not a small sum. The subsidies you mention abroad presumably support industrial interests in this country and manufacturing, so subsidies for those matters. You originally asked why it is that the consumer is concerned about this-
Zac Goldsmith: I was talking about you, not so much the consumer.
Dr Constable: You did say, "Why is there resistance to it?" and one of the reasons, of course, is that people perceive these components of the bill, both presently and prospectively, as being directly under Government control, which indeed they are. So, these are not fluctuations in this country of fossil fuel prices, which people understand the Government has very limited control over. These are impositions over which Government has direct control, and indeed Government has caused them. So people are tracking it back and that is quite reasonable of them.
Q86 Simon Wright: The majority of evidence that we have received in this inquiry identifies the lack of a robust, stable, long-term policy landscape as a key barrier to greater private sector investment in the green economy. Do you agree that there is a significant issue here as the costs of transition are so very high? What in your mind, if you do agree with that, are the key elements that need to be included in such a framework that are lacking at the moment?
Chair: Dr Bowen?
Dr Bowen: As I mentioned earlier, in some respects the long-run framework in this country is exemplary and carbon budgets, having an independent Committee on Climate Change that looks into the long term is very good. I think that-
Q87 Chair: Can I just interrupt you there. In the evidence you have given to us you talk about an enhanced role in the Climate Change Committee. Would you include that as part of your answer to Mr Wright?
Dr Bowen: Indeed, I was just about to fly that kite. I used to work at the Bank of England. I was struck by the way in which the bank’s performance, in my view, improved when the discussions between the Chancellor and the Governor were made public and the Bank of England was given a mandate to comment on what the Chancellor did under the previous Conservative Government. When the bank showed its competence after a few years it was given greater powers, and it was given constrained discretion to use the interest rate to meet an inflation target set by the democratic Government. I think that the parallels with climate change are quite close. I think the UK Climate Change Committee has shown its paces; it is very effective. It would be quite helpful for politicians, as well as for the general public, in the achievement of goals if consideration was given to handing the Committee on Climate Change power to use certain simple instruments like, for instance, carbon price floor or feed-in tariff rates in order to achieve budgets for carbon set by the democratically elected Government. It would improve accountability. It would be more difficult to confuse the goals of these instruments with other political objectives.
For instance, it would have simplified the debate about road fuel duty if it were clear which component was supposed to reflect carbon costs and who was fixing that component. It would be great if we had more of a debate about this. I can see some big advantages for politicians and for those who want to hold policymakers to account if all this was done by an agency tasked with a very specific and clear objective, and which did not have to worry about some of the policy trade-offs that the civil service has to worry about.
Dr Constable: The question was about how to create more stability in the sector. Remember, the investors are effectively asking for their investments to be de-risked in this area, and that has a cost implication for the consumer. I suggest the costs could be, and are likely to be, very high. That suggests that you have a fragility there, which means that the Government may have to return to it and to revise those mechanisms. Similarly, if the intrusions are complex it is quite likely that they are going to go wrong and they will need revision.
The lessons here are that if you want a stable structure, it has to be quite simple, it should not be intrusive and it should not imply uncertain costs of a high magnitude, otherwise Government will be forced to return to the matter and tinker. I have a lot of sympathy with the current Administration and their attempt to revise the various mechanisms to make them less problematic, but it does show that those intrusions were perhaps arguably misjudged in the first place and perhaps there should have been no such intrusions. Deep intrusions, deep, complex intrusions, with high costs, are going to be inherently fragile and susceptible to revision. You want something simple and you want something that is not intrusive.
Chair: Dr Edge, I think you want to come in briefly.
Dr Edge: Yes. I was going to say that while I agree with Dr Bowen that an overall structure like the Climate Change Act is beneficial, carbon budgets of themselves do not make things happen; you have to have a set of policies beneath it in order to do so. It is really important, particularly in the electricity sector, that we get the market reform arrangements right. That will bring forward the investment we need and which we are long overdue, given that for the last 20 years we have underinvested in our power sector.
Q88 Simon Wright: Are there any other barriers that any of you would like to raise that you have not had a chance to mention so far in this session?
Dr Edge: At the risk of starting something else, the planning system is one that we would need to be addressing very strongly in order to get green places. It is absolutely vital to get that right.
Dr Constable: Yes. I think one unappreciated problem is that the technologies are not actually available. There is a general assumption that the green economy is on the shelf and all we have to do is face the facts, pick it up, take it to the checkout and pay the price, but in fact the box is empty and the label says "Price on application". The technologies do not yet exist for this kind of transition, so the barrier there is technological unavailability and lack of sophistication, and we have to convince ourselves that the current policies are able to produce technological innovation and development, and there is much doubt over that due to historical experience with Government planned economies, with its general and subsidy programmes in particular. I would suggest that we would stand a better chance of getting a smooth and productive green transition if Government did less planning and faced the fact that the technologies are not there. That would mean probably rescheduling the targets; the targets are unrealistic given the technological sophistication of the sector.
Dr Edge: I would obviously disagree with that. Offshore wind is a very mature technology and we see that, with the right incentives and a clear path, offshore wind will become very clearly mature over the next few years.
Dr Bowen: Although I agree with Dr Constable that detailed, intrusive, very specific interventions may not be helpful, overall, the framework policy should be intrusive enough to get the job done. The problem is that as far as carbon emissions in the UK are concerned, we have relied very heavily on the dash for gas, which was not motivated by climate change policies, by the recession, which of course was not motivated by climate change policies, and by the landfill levy, which was a good move but again, not motivated by climate change policies.
We need to speed up the decarbonisation of the economy; that will require changes in consumption patterns, it will require structural change. The policies have to be intrusive enough to do that, but to maintain public support they should be done in as efficient a way as we can devise, and there I am with Dr Constable. That usually means simple instruments pervasively applied with the minimum of get-out clauses and the minimum of allowance for special pleading from particular consumer or production groups.
Chair: Thank you. There we must leave it because we have a second evidence session. I thank all three of you very much indeed for coming along this afternoon.
Examination of Witnesses
Witnesses: David Powell, Economics Campaigner, Friends of the Earth, Molly Scott Cato, Green House, and Philip Pearson, Senior Policy Officer, TUC, gave evidence.
Chair: A very warm welcome to all three of you. I know that you sat in on the previous session, so we want to get straight into our questions to you if we may. I am going to bring in Caroline Lucas, first of all, in respect of what we mean by a fair economic system.
Q89 Caroline Lucas: Yes, that is it, really. In our last session, we were talking very much about the green economy as essentially being pretty much about business as usual, albeit powered differently. I would like to ask each of you what your idea of the green economy is, the extent to which it encompasses notions of fairness and social justice and also, crucially, environmental limits.
Molly Scott Cato: Okay, can I launch in?
Caroline Lucas: Please do.
Molly Scott Cato: Thank you. Yes. A lot of the discussion so far has been on technical aspects, and I basically think that the green economy is not the same sort of economy powered differently. It is an entirely differently structured economy that is asking different questions, more about the good life and less about how much stuff you have. So I have some quite different suggestions for you as to what a green economy might be.
We have heard quite a lot recently about the idea of living within our means. That is addressed very much in financial terms, but I would like to ask you to consider living within our means in planetary terms, and the fact that the scientific evidence shows that we are not doing that. What a green economy needs us to do is to live successfully within the planet’s limits.
I would also like to mention the fact that the Enabling the Transition document, which obviously the Government is working towards, reads very much like a conversation between business and Government, and very much a small number of large businesses, whereas I think the green economy is much more about empowering people to create the economy themselves and the need to have a mature and grown-up discussion with the people of this country about the kinds of changes that are necessary to achieve the sort of energy limits that climate change requires.
David Powell: Yes. I think a green economy is a sustainable economy and a sustainable economy is a fair economy. It is important to pursue social justice ends, and that should be the bedrock of a green economy, but you also need to do it if you are going to make the economy that we live in work for people as well as the planet. I did a search in the Government’s document for the words "fair", "equality" or "justice", but I do not see any of those things. I don’t get the impression that is in their thinking in what they are presenting us with. The sustainable development definition has fairness at the heart of it. We see Government distancing itself from that. We see the abolition of the Sustainable Development Commission. We see policies, such as the Road Map, presented as growth first-"Let’s try and make it green and anything else we can do is fantastic." We need fairness at the very heart of what is going on, and that is not just words on the page; it is-as the previous speaker was saying-how the policies roll out in real life and what they mean. If you look at what the Government’s policies are doing to people, then it is the poor bearing the brunt of a lot of Government policies at the moment, so I think we are really quite a way away from that at the moment.
Philip Pearson: I think the answer is to do with the triple bottom line as it is known, the social, environmental and economic benefits of the transition-yes, one planet living. For the TUC, the challenge lies in managing the transition fairly, hence I would support the notion of a just transition to a low carbon economy. We would see the principles of a just transition including dialogue, national local dialogue between all stakeholders, so there is a sharedness there; and secondly, investment in green jobs. We could define what that means. Green skills are crucial, and respect for labour rights and human rights in that transition. There are plenty of examples of rapid economic change in the UK and elsewhere in the past that have failed to deliver benefits for the many, and perhaps those benefits have gone to the few leaving some communities stranded long term. Those transitional challenges are very much at the heart of our thinking.
Q90 Caroline Lucas: Could we get down to the "how"? There is broad agreement that we should try to have a fairer economy, but how do we ensure that economy takes account of planetary limits and addresses the fairness component at the same time?
Molly Scott Cato: The main thing that people are going to see first is the impact of rising energy prices, as they are already seeing, and I agree with the earlier witnesses that that can only increase. So that offers us great opportunities because we can see ways in which we could create jobs insulating homes. A lot of the green economy developments that we are going to see are not about these high-tech solutions and investing in renewable energy, and so on, but much more about lower scale programmes, insulating people’s homes so that we can stop the 20,000 to 30,000 excess deaths that happen every winter because poor people already cannot afford their fuel bills. We will only see that situation increase unless we take the need for insulation seriously. But the positive side is that it will create a lot more jobs as well, and they are the sort of jobs that cannot go offshore to China because they are insulating people’s homes in Scunthorpe or wherever.
David Powell: To build on that, if you look at something like fuel poverty, which is an incredible crisis in this country-a national scandal, the numbers are going through the roof-there is a real need to put more money into tackling it. The Committee will forgive me because there have been announcements during the course of today about the level of funding for the energy company obligation, and I understand that we are looking at £1.3 billion being available for that. That is less, in absolute and in real terms, than was available for funding for energy efficiency before the subsidy for funding for energy efficiency. We are about to have no publicly funded subsidy for energy efficiency for the first time since the 1970s.
If a green economy is to take people with it, people need to see the benefits of action as well as just their bills going up, so there has to be social justice hardwired into all these policies. Where you are levying things on bills, make sure that the people who really need the benefits get the benefits first-make sure they are levied fairly, and make sure that social justice is an absolute No. 1 consideration when green policies are being rolled out. I do not always see evidence of that.
Molly Scott Cato: We could also go beyond the fairness question as well, and move on to think about well-being. It is 20 years since Richard Douthwaite wrote that really useful book The Growth Illusion, in which he identified that the way the economy is growing now, which is obviously one of the major things that needs to change in terms of a green approach to economics, is causing all sorts of negative impacts on society, so there are increases in crime and increases in rates of antisocial behaviour, and people are losing contact with their families and their relationships because of having to work so hard. There are a lot of opportunities in moving towards a green economy where we could enhance people’s well-being and improve relationships and the kinds of things that make people happy, rather than having the sort of economy that is just focused on growth and more material things.
Philip Pearson: I would sum it up in terms of the distributional, or managing the distributional, impacts of policy. David has already talked about fuel poverty. Yes, of course, that is a major distributional impact problem now and it is getting worse. The other distributional impact of energy policy has obviously been on the energy-intensive industries, which we may come back to. Last week, didn’t we see the closure of the UK’s last remaining aluminium plant in the north-east? It is a tragedy for industrial policy, in our view. The reasons will no doubt be complex and not only about energy policy, but if we lose plant like that we will not have the wherewithal to develop our own low carbon economy; it is very worrying. Those kinds of distributional issues need very close attention, which is why the TUC strongly believes that there should be much greater stakeholder involvement in this process, otherwise people just become bystanders and victims of policy rather than having a sense of being able to engage in processes and change.
Q91 Caroline Lucas: Just one last question. I still want to get more to the heart of how the economy takes account of planetary boundaries. It sounds a nice thing that people say but what does it mean in concrete terms? Presumably, it means less stuff, but then how that does affect the poorest? I want to drill down more into that.
Molly Scott Cato: It is important to recognise that there is a connection between the need to respect the limits of the planet, and, therefore, to have some limit on the amount of stuff that is being produced by the economy, and questions of equality. So in the past, well, politicians-not meaning to be rude to those delightful politicians present, but it has been something that has been sold electorally, the promise of giving people more, more material wealth. That has been allowed to be used to sideline questions of distribution because everybody knows that next year they will get more than they had last year, so even though they might have less than the person next door they will still, themselves, have a larger slice of the pie.
But if you start thinking about an economy without growth, the questions of distribution become much more important. So I think it is inevitable that an economy that has stopped growing will also be an economy where issues of social justice come to the fore and need to be addressed through policy directly in a much more active way, rather than people just being offered the chance that the economy will grow and they will get a larger share.
David Powell: For the planetary boundaries thing, we do have a policy instrument that is having a go at that, which is the Climate Change Act. That is a working attempt to quantify, limit and reduce an environmental impact-adhere to an environmental limit. It is working, to the extent that we have the Climate Change Committee, we have the debates and we have the reports. The impact that the Climate Change Act has had is huge. There are, of course, significant problems: are we moving quickly enough? Are the budgets that the Climate Change Committee set tough enough? There are all of those things, but the principle is there. I understand there is a lot of work going on in Europe to think about how you might extend that principle to other resources, how we might measure our land use, how we might measure our mineral footprints, those sort of things.
I think that sort of principle is something we need and it has to sit at the very heart of Government. It has to flow through all Government decisions. It cannot just be a box that is ticked. It cannot just be business as usual with a green tinge. We have to have these metrics and these limits at the very heart of Government.
Q92 Zac Goldsmith: Can I jump in on that? I wonder what you think about the Natural Environment White Paper, which is an attempt to do exactly that, to try to place a value on ecological systems domestically, with a view to creating a model that can work elsewhere. What would be your view and reaction to that?
David Powell: It sounds like a great idea. I also think it is completely absent from the Enabling the Transition document. It is absent from the National Planning Policy Framework. That concept is absent from most other things we see. I guess the absolute first step is to quantify something into value. There are problems with valuing something because if you value it you imply you can sell it, you imply we do not need it, but it is definitely a step in the right direction.
Q93 Zac Goldsmith: Is there an alternative direction?
David Powell: No. I think it is absolutely correct to quantify and value natural capital and to put that at the heart of the economy.
Q94 Zac Goldsmith: Is that the view of Friends of the Earth?
David Powell: Yes. But quantifying something and giving it an economic benefit helps with policy making. It is a very different thing to say that you can sell a natural asset, that there is a fundamental price that you can pay for them, in order to push the things up the agenda. Just like with climate change, there is a price on a tonne of carbon. You can argue about what that price will be. We would say that price is probably too low but the point is it is there. Without that, you cannot have that debate.
Molly Scott Cato: I am troubled by costing nature. It reduces the value of something that has an inherent spiritual value that cannot be priced. I also agree that once you have put a price on it, you have tended to commodify it and it may then become available for sale, so I think it is inherently problematic.
Zac Goldsmith: Do you believe it is-sorry?
Chair: Sorry; I think Sheryll wanted to come in, in respect of the planning framework.
Q95 Sheryll Murray: It was about the Natural Environment White Paper. Have you read both documents and responded taking both into account, because obviously they complement each other?
David Powell: Which two documents?
Q96 Sheryll Murray: You mentioned the National Planning Policy Framework but have you responded to that taking into account the contents of the Natural Environment White Paper?
David Powell: Colleagues have, yes. We can make sure that we send you a note after the event. Colleagues who lead our planning work are fully on top of this.
Q97 Sheryll Murray: They are supposed to complement each other. I just wondered whether you were looking at them as completely separate documents or whether you were looking at them as a whole, as Zac indicated.
Chair: Sorry, Zac, did you want to come back in again?
Zac Goldsmith: That was an interesting question. I would like to ask you a question but you are not on the stand.
Q98 Chair: The issue is about how the Planning Policy Framework syncs with the overall, overarching different policy statements as well, but perhaps that is a discussion for another time.
Just to carry on a little bit; you mentioned about an open transition, and I am interested in how you would improve it. One of the things that you said was that, up to now, it seems to have been a conversation between Government and business, and the need for greater engagement would perhaps lead to behaviour change as well. I am interested in how you would take that further forward, and I am particularly interested in the TUC aspects of this because the behaviour change has to apply to jobs in the economy as well.
Philip Pearson: Yes, it does. Enabling the Transition emerged from a completely different document. The Green Economy Council was set up and first met in February this year. It has now met three times; it met last week. The first meeting was due to discuss a draft of the Road Map. I know this because there are 20 members on the council and each of those members has a Sherpa policy adviser in a working group. The TUC has two seats and, therefore, I am on the working group. We saw two drafts of the paper, which does not really look like the paper that was published in August. That is one of the puzzles. The council was beginning to engage itself, it seemed, in developing-I will not use the phrase "active green industrial strategy" but defining more clearly the role of Government with a new Government in place, and looking at the barriers to that transition. The document that was published was a communications document. It was a kind of state of play piece, but it did not really set forward a vision with a time frame for investment, how you would intend to get there and what the targets were. It was very different from the original piece. There was very good intent in Government in creating the Green Economy Council, which is, after all, co-chaired by three Secretaries of State and therefore has high buy-in.
There is still work to be done engaging those stakeholders. There is a gap in the stakeholder membership and there are no NGOs represented, so you have business and trade union but no NGO community. Some of that may be reflected in the balance of arguments that are emerging from the council but it is, nevertheless, the right kind of body to set up as a place where stakeholders, at very high level, can have an input. As to managing the process of change, now we are drilling down to workplaces, which I think was something you touched on. Yes, the notion of greening workplaces is a theme that the TUC has been working on for a good number of years now. On our website you can see a number of good examples of joint employee/employer interventions to reduce the footprint-the energy resource use of workplaces. They are a very local version of the stakeholder vision that we have, which we think should be available at a range of levels from the national to the local. There are other community-based initiatives going on round the country, of course. Many of them have been around the feed-in tariff work stream that seems to have ground to a halt, but the process of engagement is one of the main things that this Government can be credited for initiating at high level, but there is clearly much more to be done in this area.
Chair: Did you want to come in on that further?
Molly Scott Cato: I wanted to be a bit rude about that document. Do I have time for that? I just found it not very rigorous or very well supported by evidence. It seemed rather a list of assertions and in the sort of "business as usual" paradigm, as if that was good enough. But I think it needed to justify why this was what moving to a green economy meant and I did not feel it had done that successfully.
Q99 Dr Whitehead : Mr Pearson, was it your understanding that the Green Economy Council was going to be reasonably involved in shaping and securing the document that turned out to be this transition to a green economy document?
Philip Pearson: Yes.
Q100 Dr Whitehead : If you don’t mind me asking, what happened to the material that you referred to that did not turn up in the eventual document?
Philip Pearson: Between the council meeting on 7 June and the publication on 4 August, I don’t know. It went into a place and emerged as a different document.
Q101 Dr Whitehead : Were you informed on the council as to how that other document arose? Who had informed that and what sort of work had gone into that particular document?
Philip Pearson: I am not a council member. These are questions that perhaps others in Government can better answer than me, because those of us on the working group were puzzled by the morphing from one document to another. There is some mutual text, some shared ideas, but it is not a road map, is it? It is something other than a road map and yet, drafting a road map was the coalition’s intention in the coalition statement on the economy. Clearly, that was an ambition but what we had was more like work in progress, so at the meeting last week the council discussed a forward work programme on a range of issues-skills, procurement, barriers, finance, those kinds of things-which could eventually provide such a road map. If you are looking at barriers, road maps are about barriers and directions, aren’t they? So that could happen still, but what emerged was a little different from what was originally tabled.
David Powell: It is significant, actually, this word "road map", because that is what we were promised-that is how it was trailed-and I notice it is no longer called a road map. It is now just a selection of things the Government is doing. If you just wanted a document that you could read to work out whether the Government thinks green business is important or not, then I think it does that job. If you wanted a document that would say, "Well, some of the good things the Government has done over the last few years, like the £60 million ports upgrade," tackling those strategic bottlenecks, are they prepared to do that kind of thing again? Do they take this seriously enough that if they need to pay for it, they will pay for it? I do not get that sense. I agree that I do not get the sense of the sort of sectoral approach-working out what needs to be done to transform the economy sector by sector.
As I said earlier, the proof is in the pudding and it is all very well to have a document that talks about green jobs and how important it is to have a green economy, which is right of course. But then you have things happening, such as is what is happening with the feed-in tariffs, where one of the very few economic success stories of the last few years and certainly one of the very few green economic success stories is being thrown to the wall to fit an arbitrary budget that was imposed by Treasury, and has been used as an excuse to severely curtail the ambition of the feed-in tariffs. If I was an investor looking at that landscape I would take a piece of paper but I would also say, "What is happening in practice?" and I think that is the key.
Q102 Dr Whitehead : Mr Pearson, you mentioned the work programme that is now in front of the council. Would you view it as starting to fill in the gaps across Government, and what might those gaps look like in terms of the extent to which a green economy road map, one might think, has to address all of Government rather than particular areas?
Philip Pearson: Yes. I can probably tell you what the council discussed. I do not think it is clear yet what emerged as conclusions from last week’s council meeting on priorities. So I could list issues I know they covered that were fairly well discussed, including skills for a low carbon economy; questions of green procurement came up, and barriers to low carbon investment. Of course, the future strategy for energy intensive industries has been a hardy annual on the council for a while, and so it should be. One of the items was labelled Enabling the Transition, which I think referred to further work on that document. That gives you an idea of the priorities that were debated. There must have been others that I cannot recall, but when the minutes emerge that will tell us where this is likely to go.
Q103 Dr Whitehead : This is perhaps a broader question What do you think is the role of fiscal measures, such as changing towards green taxes, i.e. taxing bags rather than goods; not necessarily increasing the overall burden of taxation, but a fiscal switch, which is, in principle, in the transition document? How significant do you think that is in the process or might be in the process?
Molly Scott Cato: Perhaps we could go back to the previous session and talk about your point on moving from taxing things that we quite support like jobs, into taxing things that we think are more problematic, like carbon dioxide and so on. Yes that is definitely a move in the right direction, particularly if they can be shown to be fiscally neutral so you do not just have a reaction against that because the burden of taxation is increasing. I would like to suggest that maybe we could think about using land taxes in a similar of way, because going back to your question about which area of Government policy isn’t being included enough in discussions around the green economy, I would like to highlight land policy and the fact that land often gets left out of these discussions all together, whereas actually it is a key component of the green economy, not only because we are seeking more self-reliance in terms of food production but also because land can be used as a very significant carbon dioxide sink through afforestation, but also through particular land management practices that enable the land to hold carbon dioxide more. I think this is something that has been overlooked. It is a way that we can use our economy to work with natural systems, the carbon cycle and the nitrogen cycle, whereas at the moment it tends to conflict with those systems. We might be able to think about using a land value tax together with the planning system in a way which could enable the shift towards more sustainable land use patterns.
David Powell: The idea of shifting the burden of taxation is absolutely spot-on. Friends of the Earth support it. It is the right thing to be doing, and it is really important for the wider issue of how you connect people with the green transition. I think people do not see the benefits-the connection with green taxes. If there were more of a shift, so that people could see that changing behaviour was a way they could avoid taxation that would be a really good thing.
You asked earlier about the ONS definition versus the Treasury definition; of course, fuel duty is not in the Treasury definition and I would imagine one of the reasons why they do not want it in there is because it makes it harder to keep on cutting it whenever the political heat gets a little bit higher. If you look at what happened with fuel duty, it is an interesting case. The Government told us there was no money. They said again, "There’s no money. You can’t have anything else. There’s no money." Then suddenly it found £10 billion over five years it didn’t know it had, by taxing the fuel and gas industry-fantastic. It used every penny of that money to cut fuel duty; not a penny of it went to reversing its cuts to the bus subsidy or helping lower rail prices. So I think we need a really joined-up approach to taxation. We need a fairer tax system, full stop. But I think one in which environmental taxes are transparent-seen-and the money is used for the right purposes would be a hugely bold step towards a fair and green economy.
Molly Scott Cato: If I can go back to my earlier point about a more widespread discussion around these points, I am quite interested in the idea of a carbon floor, which is again not being called a tax, but I am finding it hard to see why that is not a carbon tax and we have the climate change levy, which is again not called a tax. I think maybe these are things that are being sneaked in because politicians are a bit wary of engaging with electorates about these issues, but I think it is absolutely crucial that that happens because we are not going to be able to respond to the ecological crisis or build a green economy unless the people who make up that green economy understand why these policies are being brought forward.
Philip Pearson: Can I just add-
Chair: Very quickly because we are in the last 15 minutes and we are expecting a vote at 4.00 pm.
Philip Pearson: Just very briefly, on shifting the burden, it is more burden than shifting; that is the way we would see it. You have the carbon tax coming in, the ETS revenues, the climate change levy and the carbon reduction commitment, which is now a tax, so where is the redistribution going on? That is the real problem. It is rather like the introduction of road taxing in Greater London; you had to make sure that you had the alternatives in place first in order to make the pain acceptable. I feel that the management of that tax transition is really quite questionable. It does not seem as though very much buy-in and certainly not much rebating is going on.
Chair: Thanks for that.
Q104 Zac Goldsmith: I just want to ask Molly Scott Cato a question. I am not sure I understood why it matters if it is not called a tax and the carbon floor price is there. Maybe it isn’t a tax. It would only kick in if the price of carbon went below a certain price, at which point there would be no money at all. It almost seems to me you are saying unless it sounds painful, it can’t be good and, therefore, we have to make the message as ugly as possible.
Molly Scott Cato: The hair shirt. I don’t mind at all whether it is called a tax. I was just addressing the point raised earlier about whether that was why there was some re-jigging of definitions. No, I don’t mind what it is called as long as it does the job.
Zac Goldsmith: I jumped in at the end.
Chair: Yes, you wanted to talk about local economies.
Q105 Zac Goldsmith: Also to Molly Scott Cato. In the evidence you have submitted, you put a lot of emphasis on self-reliance. Can you expand on that, specifically describing what benefits that would bring?
Molly Scott Cato: Okay. We need to recognise that globalisation has left us rather vulnerable, and we are now living in a very energy-intensive economy where we rely on countries on the other side of the world to produce our most basic goods. Those systems are not only energy intensive; they are also obviously very lengthy. One of the things we know about climate change is that we will be seeing more unpredictable weather patterns, and I do not think this system of distribution of our most basic needs is very reliable. I would give you, as an example, what happened following the Japanese tsunami, where because they have those just in time production systems, suddenly British car plants can no longer function because they cannot get parts that would normally be shipped in from Japan. To me that looks like a very vulnerable system, and I think a more local system of production would make us more resilient.
I would also draw attention to the fact that if you look at a map of the world and see where the world’s ports are, they are all at sea level, yet the first consequence of climate change that we know about is going to be a rise in sea levels of about 5 metres within the next 20 years. How resilient is that system of supply?
Q106 Zac Goldsmith: What do you think are the main barriers preventing that from happening? Is it ideological, is it policy or is it evolutionary market forces? What do you think is preventing that re-localisation?
Molly Scott Cato: There are obviously very strong political forces in favour of a global trade system operating through the World Trade Organisation, and I think we should start to question those on the basis of jobs, but also on the basis of resource security, particularly in terms of food. We should have the courage to question whether that global free trade model is serving us well in terms of our security, as well as in terms of the sustainability of our economy.
Q107 Zac Goldsmith: I agree with you. Do you think it is possible to do that in such a way that it does not trigger an explosion of trade wars between the various countries, and how would you manage that process?
Molly Scott Cato: Part of that issue comes back to land, and giving people access to land so that they have some choices about being able to produce for their own needs. At the moment, even in places like Stroud where I live, where people are very keen to do that and have the skills, it is quite difficult to do that without access to land. I think we will have to challenge those global powers, but we should also start from the bottom up at the same time by enabling people to have access to land and actually meet some of their own needs directly, which would build much more sustainable local economies.
Q108 Zac Goldsmith: Can you think of any examples where the trend has been bucked, in any particular sector in any particular country, where you see re-localisation of a particular economy or a particular sector as a result of political decisions?
Molly Scott Cato: I do not have the data here now but I do know that in the food sector there is a lot more emphasis now on local food production. That is through choice rather than through political activity. I am conducting some research into farmers markets right now across the country. It is a sector that is absolutely thriving and it does seem to me to be bucking the trend towards globalisation anyway.
Philip Pearson: You should have a study trip to Cuba maybe.
David Powell: What Manchester are doing is very interesting; they have done what a lot of local authorities have done and set themselves a carbon target and looked at it, but they have gone further. They have actually said not just, "What are our Kyoto production emissions in terms of carbon?" but "What is our footprint? Where do we get our things from?" They are actually looking beyond it to try to reduce that. It is early days for that strategy, but the idea of having local leadership in an area, even if you don’t have all the land in Manchester to do it, shows you can understand your footprint and seek to reduce it.
Q109 Sheryll Murray: Could I look at some issues related to growth, job creation and the green economy? Do you think that the UK exporting goods to capture international markets is consistent with the green economy, and what should the Government be doing to ensure that we can maximise the number of jobs we can create?
David Powell: I think it is consistent to have areas we are exporting to, where we genuinely are exporting things that we lead the world in. It is right to have a focus on offshore wind, which is something that the UK does, carbon financing and all the things that we have a lot of experience in. I think that is absolutely appropriate.
Going back to the earlier session, I do not think we are ever going to keep up with China in making solar panels, but I do think there are things where the UK has the advantage and where we are an attractive place to invest and we should use that.
Q110 Sheryll Murray: I said exporting goods, so I wasn’t just talking about green-related industry but other goods as well. Do you think it is right that we should be exporting goods to capture international markets? Do you think it is consistent with a green economy?
David Powell: Clearly there is a tension there, isn’t there, because it is daft that we ship apples to other countries and then buy apples back in again, for example, with the embedded transport costs of that. That sort of thing does not seem to me a particularly good use of anyone’s time, particularly not in the sense of environmental limits. Exporting technology is one thing. I think Molly will have a lot more to say about limits to self-sustainability.
Molly Scott Cato: I feel I have said it already. I do think it is much more important to produce at home and I think we should start asking questions and assess the benefits of trade, in terms of their environmental impact rather than just the economic gains in the sense of higher profits. There are other economic gains in terms of job creation, skilled jobs and people having a sense of meaningful identities within their home communities, which will be brought if we have a regeneration model based on local production as opposed to global trade. I think the export-led growth model is incompatible with a green economy.
Q111 Sheryll Murray: Could I ask you to expand a little bit? How do we ensure that areas of the country that rely on energy-intensive or resource-intensive industries are not adversely affected by the transition to a green economy? I recently joined the Chairman on a visit to Johnson Tiles, for instance. Ceramics is quite an energy-intensive industry and they have made moves towards cutting back on the energy they consume, but are those industries being adversely affected or do you believe they are?
Molly Scott Cato: They are being adversely affected. One of the things that we must face up to about the transition to the green economy is that energy-intensive industries are going to face difficulties. But what I would suggest is that we go through some kind of transition process, where we focus on these industries and we encourage them to move into developing in a way that is no longer so energy intensive. So, for example, obviously bricks are a highly energy-intensive way of building houses, so if you have a brickworks it is going to suffer from this kind of carbon pricing but, on the other hand, if you were building houses using wood then you are sequestering energy in that wood. So you could still have a construction industry; it is just one that is going to be relying on different kinds of products for building the houses. It is one of the conversations that need to be had, as I repeated previously. We need to engage with people and explain to them that there are reasons why we are having to make these changes, whereas if it is just a discussion that happens between the people who run the brickworks and the politicians, and all the people on the ground see is that they are losing their jobs, then you are obviously going to have a very negative reaction.
Q112 Sheryll Murray: Do you think that could result in us losing some skills as well?
Molly Scott Cato: We will lose skills but we will gain other skills, because in a more localised economy, based around more self-provisioning, people will develop different kinds of skills and, in many cases, higher-level skills, I think.
Q113 Chair: I am conscious of the time. The TUC has been working on this, so I would like to bring in Mr Pearson and then I will move to Caroline Nokes.
Philip Pearson: Just very briefly, Chair. Yes, indeed; we have been working with the energy intensive users’ group, which is the industry body that represents steel, brick making, cement, glass and ceramics, of course-you visited Johnson Tiles. The way we have addressed this issue, where the serious challenge is, effectively, carbon leakage-that is the agenda-is through an evidence-based approach where we have jointly studied the energy cost burdens on these companies, because otherwise there is a lot of special pleading you need to get beneath. Secondly, the second study we published in July was about technology innovation: what kind of technology investments are taking place and are needed? In both areas, there clearly is a huge need for Government leadership and support to develop a low-carbon industrial strategy that would secure the place of these core industries in a low-carbon economy-therefore, jobs-and, therefore, secure the skills; indeed with the new technologies that are emerging, it would improve and strengthen the skills base. It then would address the issue about exporting carbon.
I was fascinated by your question about exporting goods in the low carbon economy because, of course, that is part of the problem, but the UK is a net exporter of carbon, not goods I would have thought. Don’t we export 8% more than our carbon footprint because of the goods we import from China? But getting the package right for the energy-intensive industries is currently possibly the single most important issue that the TUC and those industries are vexed by, and we are looking forward to what is in the autumn statement. There may well be an announcement on this problem, but I think we would see that-
Chair: Mr Powell, can I just have one sentence and then I am going to bring in Caroline Nokes.
David Powell: Yes. I was going to say there is a big difference between rising energy costs and rising climate costs and there is a real danger at the energy-intensive industry level, for small business, for everybody. There is a media culture about putting the blame on to climate policies. For energy-intensive industries, climate policies are about 5% of their costs and at the moment that is not going up or down. Energy prices are the things that are going through the roof. That is fossil fuel prices. They are the things that are going up. What can’t happen is energy-intensive industries effectively opting out of a carbon tax regime that has not even started yet, purely by pointing the finger at the very small climate component of what is a massive problem for industry in general, rising energy costs, international competition and a lack of stability, a lack of joined up approach.
Chair: We have heard from the TUC of the attempts to put transitional policies in place.
Philip Pearson: You have heard from us. We wrote about that in our evidence.
Molly Scott Cato: Could I very quickly also suggest my ecological enterprise zone, which I included in my submission? One of the things, in terms of this conversion, that we need to do is to think experimentally, and it would suggest allowing some areas to adopt different kinds of policies and have particular financial support from Government, on the basis that they would commit to very significant carbon reductions. So you could basically trial various things in different areas where you are currently relying on very energy-intensive industries.
Q114 Caroline Nokes: This is going straight back to Mr Pearson about a potential skills gap and the different skills that are required in building a green economy; you have already mentioned some of that. What I specifically wanted to ask is, do you see it as important that it be the Government that leads training providers and further education colleges to make sure that the skills are there, or is it okay to trundle along with companies dictating to colleges what they want?
Philip Pearson: In the Low Carbon Skills Challenge, which is the Government’s publication, if you look at the stakeholder responses it points to two or three things. There is concern about the employer-led, demand-led approach, particularly when you have fast-growing industries like renewables that do not have the capacity to train up an expanding work force; they can only train with their own resources. It is a classic case of where the demand-led approach does not work, where employers in RenewableUK studies are short of very skilled labour. The STEM skills are the core problem. We need to develop pathways to promote skills-science, technology, engineering and maths; pathways to STEM skills and jobs with STEM skills. That is the core problem and that is not unique to the green economy. It is an important problem and we would see Government needing to step up here to lead. We have called for a taskforce on this issue. The Green Economy Council may indeed set up a task group on that, and we very much hope it does-it may be ministerial-led-to look at the strengths and weaknesses of the current model and what needs to be done to ensure we have the skilled work force anticipated, planned for, and trained, probably borrowing from lessons in other countries, like Germany.
Q115 Caroline Nokes: To what extent do you feel that the skills gap is providing a barrier to the green economy?
Philip Pearson: You will get answers to that question from a range of industries and they would all say, in different ways, there are skills at different levels that present barriers.
Chair: Thank you all for coming along and giving evidence this afternoon.