Inside Track

Connie Hedegaard is quoted as saying

 "What is the point of extending our commitments if none of the other big economies say that they are willing to follow, if not today, then at least at some time tomorrow?"

 It was very heartening to hear her talking common sense when asked about the future of the Kyoto Protocol after it comes to an end in December 2012.  There had been rumours that Connie and Chris Huhne would push for Europe to go it alone, which to me would be econmically damaging for Europe and won't achieve a global solution to climate change.

 A global legally binding accord would in theory be the best approach, however, we have been trying to achieve this since 1992 and how far have we come?  Kyoto set in motion the framework for a global deal, but the most significant outcome has been the increasingly isolated EU ETS cap and trade scheme. 

 It has become evident that for only Europe to have a cap and trade scheme is detrimental; it pushes up energy prices when many other countries’ energy remains low, thus pushing production to the emerging economies who are booming because of the increased demand to produce the goods demanded by European consumers.  This leads to a crucial point, are emissions actually going down, or are they just being moved to these less regulated, and cheaper to produce in countries?

 As Connie stated, “Europe represents only 11% of global emissions.  What will the other 89% do?”  We need to stop thinking that other countries will follow our lead, they aren’t and they won’t, while the EU has such a complex and costly climate change policy landscape.

 There is a need to re-evaluate the approach we take in tackling GHG emissions at the global level rather than keep hoping everyone will suddenly have a change of heart.  If the talks at Durban can recognise this, then I think the talks will start to move us out of the stalemate we are currently in.

 EEF will be closely following the talks at Durban and calling for a move away from a Europe-only view.

EEF welcome the revised Impact Assessment estimates provided by the Aldersgate Group in conjunction with WWF, The Co-operative Group and Christian Aid, published today, as providing more evidence about the costs and benefits of reporting.  EEF are not against reporting GHG emissions and agree that there are significant benefits to be gained by reporting in company reports.

EEF represents the manufacturing industry in the UK, which is already significantly burdened with other climate change policies – CRC Energy Efficiency Scheme, CCL and CCAs, and EU ETS.  This is a lot of regulatory pressure for companies to comply with; without the addition of mandatory reporting.

Indeed, some EEF members do already report their GHG emissions in company reports, and not just in the UK, but for their global operations too – and they see the benefit in doing so.  EEF agree with many of the revised costs and benefits, such as the better scope for which costs and benefits are included, but at the same time, do not see why this means that GHG reporting should be made mandatory.   

As we have already argued in our response to the Defra GHG reporting consultation earlier this year, Government has taken little to no steps towards promoting the current guidance for GHG reporting.  The up-take in GHG reporting may have only increased by 4% since 2009, but instead of immediately jumping on the regulatory bandwagon, why not sit back and think about what the barriers to up-take have been?

To me, a logical step is to make sure that the current policy instrument is working to its full potential before introducing a new approach.  Surely this is much lower cost than introducing new regulation?  It will sit better with the Government objective to reduce the regulatory burden for business.

The commitment in the Climate Change Act – to make GHG reporting mandatory by April 2012 or present evidence as to why not - is less relevant today than when it was first published.  At that time, we did not have the crowded and confusing climate change policy landscape we have today.  It was also a commitment

It should also be remembered that UK manufacturing differs from other sectors as they are more likely to be caught under these other policies.  Discounting the person-day input doesn’t really make much difference to a lot of EEF members, who already have this many person-days through CRC so additional burden is seen by them as just that, a burden with no additional benefit.

The revised benefits assumes that, year-on-year, there are savings to be made; and for a company new to energy efficiencies this is true.  Many EEF members are already working to make their sites more efficient and for some there is no possibility to go any lower – it is just the nature of what they are producing.

Yes, EEF agree there are merits in reporting on your GHG emissions and as today’s publication shows, quantifiable benefits, but I just don’t see why it needs to be made mandatory before the voluntary approach has been taken seriously.  In order to push through with mandatory reporting there needs to be stronger evidence that the current approach is not working and a policy ‘out’ will also need to be found.

With the current Defra consultation on Greenhouse Gas (GHG) emissions reporting soon to close; EEF has discussed our initial thoughts with government on the options put forward within the consultation.

Defra has made it clear that it does not have a preferred option for GHG reporting that it wants to ‘gather views from businesses and other interested parties prior to taking that decision’.  It was also made clear that reducing regulation is a ‘key priority for the government’.

It is encouraging to hear that other stakeholders share the same view expressed previously by EEF - that government should look at the bigger picture and consider reporting alongside the crowded suite of climate change policies that are already in place, namely the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme.  This is the perfect opportunity to conduct such a review – when government is seeking ways to simplify the CRC Energy Efficiency Scheme, and will be consulting on the future of Climate Change Agreements (CCAs) some time in July.

However, is anyone in government capitalising on this timing?  EEF argue this is an opportunity for government to act on its key priority and reduce some regulation, by replacing the CRC Energy Efficiency Scheme with mandatory reporting that follows it previously published reporting guidelines.  This option would use the current CRC energy threshold, of targeting organisation that are supplied with more than 6,000 MWh, as its criteria.

Keeping this flexible, by allowing companies to choose the approach that is best for them - and using Defra’s already well received guidance for reporting on GHGs - it will tick a number of boxes: reduced regulatory burden; reduced costs (both for companies and government); evolution of best practice through flexibility in approach; increased investor confidence; transparency in measurement; and increased competitiveness.

EEF will continue to lobby this point of view at further meetings with Defra officials over the coming weeks – ahead of the 5^th July close of the consultation.

If you expected clarity any time soon regarding the government’s intentions to mandate greenhouse gas reporting expect no more. Another amber signal has been issued. The hold up this time is due to fears of adding more red tape during a major deregulation exercise – but isn’t this missing the point?

Just to recap. In November we were told the government will decide in early 2011 whether to introduce compulsory reporting. Then, DECC minister Greg Barker told us that government would “announce a robust way forward in the new year that will require a clear route map on how companies are required to report their carbon emissions.”  However, now Defra minister Jim Paice has announced that consultations aimed around the end of May will explore a number of factors, including whether introducing regulations is indeed the best option.

The rationale, it has been cited, is that government wants “genuine” consultation about this without rushing into introducing more red tape if it’s not needed. In the Financial Time’s piece on the matter, published yesterday, the British Chamber of Commerce was quoted saying that it would be “incredible” to impose this requirement in the middle of a major deregulation effort. It warned that it would ensnare lots of medium and small companies, particularly manufacturers.

But doesn't this miss the point? Greenhouse gas reporting could in fact help with the government’s deregulation effort by scrapping the now cumbersome and expensive Carbon Reduction Commitment Energy Efficiency Scheme and replacing it with mandatory reporting.

Not only would it be lighter-touch and cheaper to regulate, we believe it could be more meaningful and cost-effective for manufacturers with the added benefit of potentially helping them improve their competitiveness. As we have always argued such an approach would be streamlining regulation not adding burden, providing the government wasn’t overly prescriptive in how it was applied.

Given that the whole issue is being subject to further delays we will be calling on government to look at the bigger picture; to consider the role of reporting alongside the crowded suite of complicated climate change policies that are already in place, most of which are within the government’s gift to change. Clear and strategic oversight is really what is genuinely needed.  

British business can expect to save a staggering £23 billion a year through low-cost/no-cost methods simply by improving the way they use energy and water and by reducing waste, according to a new report which emerged from the environment department on Friday.

It’s a huge number. And it’s significantly higher than the £6.4 billion estimated by consultants Oakdene Hollins and Grant Thornton when they initially conducted the study in 2006. Yet the numbers keep on growing. On top of the £23bn low-cost savings, those opportunities with a payback greater than one year have been estimated at an additional £33 billion.  

We must be careful about interpreting the report literally. It was not based on any site-audit data. Nor did it use any case studies. The figures were developed by using existing data from a variety of sources. But they do serve a useful reminder that lean manufacturing and resource efficiency can potentially have a profound impact on competitiveness.

But over £55 billion worth of savings? You would have thought manufacturing, of all sectors, would be alert to those kinds of savings. But of course there are a range of factors that prevent businesses from realising the fruits of resource efficiency. The researchers in fact have created four lists of reasons. These range from access to finance to difficulties implementing changes because of the need of specialist advice to the prevalence of behavioural barriers, or because businesses simply are not aware of (or have access to) information about the costs and benefits of particular measures. 

Either way, it smarts to be told all this at the same time as the government is stripping away many of the business support schemes it had developed in an attempt to overcome these entrenched barriers. While our training on resource efficiency effectively deals with the information gaps the researchers referred to, last week, the Carbon Trust, in an address to EEF's Climate and Environment Policy Committee, confirmed it would no longer be offering its free on-site energy audits, would be discontinuing the well-received Industrial Energy Efficiency Accelerator and scrapping its 0% interest-free loans*. In short, the Carbon Trust is now offering very little (bar its frequently excellent publications) to business.

While it is true the Trust has its funding cut by £50m, it is also true that this brings its funding in line with what it received three years ago. Yes, some of the Carbon Trust’s offerings to business needed reform – but to scrap (what seems like) everything? I can’t help feel that if the Carbon Trust vacated its plush offices in central London it could a better start to address the funding “shortage” without cutting services to business. Sure this would prove to deliver greater levels of resource efficiency?

* A new “green finance deal” worth £550m has been announced over the next three years, to businesses of all sizes, from 4 April 2011 following a deal between the Carbon Trust and Siemens Financial Services Ltd. Interest rate levels have not been confirmed. See here for more information.  

The coalition government have slammed on the brakes for the planned extension of civil sanctions to the environmental permitting regime. Or rather Oliver Letwin has.

Civil sanctions, being trail-blazed by the Environment Agency, allows it to exact certain powers without the hassle of going to court. These range from fixed monetary notices and stop notices to restoration notices and "enforcement undertakings." The latter being an agreed course of corrective action to bring a company back into compliance without having to face prosecution.

But while the Agency can apply its new powers to some offences there are some important exceptions - not least environmental permitting. Secondary legislation enabling this to take effect from 6 April was due to be laid before Parliament this month. But Letwin is not convinced this is the way forward. Progress, therefore, has been halted.

This is not the only area where Letwin is making his mark. In his capacity as minister for government policy at the Cabinet Office he is reading everything that is passing his desk and isn’t afraid of halting the progress of policy if it doesn’t stack up, according to sources in Whitehall.

Let’s hope so. We wrote to him last week highlighting the findings of our 2010 telephone survey of members which found half of those interviewed thought the sheer burden of regulation was a barrier to growth. We highlighted how the poor quality of impact assessments required a change in policy-making culture and that even a small increase in the transparency of how impact assessments are developed would help restore credibility in the system.

No more plainly is this evident than in climate change regulation. Currently, government is reforming Climate Change Agreements and the CRC Energy Efficiency Scheme. New duties to report greenhouse gas emissions are being considered. Alongside this a carbon floor price and energy market reforms. We are concerned that this work is being carried out in a piecemeal way, and we have had little evidence or reassurance that the impact of the work in this area is being considered strategically. The recent consultation on the carbon floor price did not even seek to understand the potential impacts on manufacturing (see a summary of our response here).

Let’s hope that Letwin kicks this into touch. We need a strategic vision. We need certainty of policy direction. And we need to see climate change and energy policy implemented cost effectively if manufacturing in the UK is to remain viable for the many.

"If we go alone to 30%, you will only have a faster process of de-industrialisation in Europe," the EU’s energy commissioner Günther Oettinger was quoted saying in The Guardian[1] on the 10 February. “We need industry in Europe, we need industry in the UK and industry means CO2 emissions.”

The energy chief’s comments have been a welcome interjection of sense as internal wrangling over EU targets to cut greenhouse gas emissions by 30% - rather than the current ambition of 20% - continues. He warned that a tougher target would force industries to move to Asia.

Figures published at the end of last year certainly add credence to this view. While the EU is on track to meet its Kyoto objectives, as a result of falling emissions from production, the Policy Exchange[2] published research showing that the consumption of greenhouse gases continues to rise. The UK is consuming a third more CO2 than in 1990.

This rise is a result of the greenhouse gas emissions “embedded” in the products and materials we are importing into Europe and the UK from elsewhere in the world where production is not regulated. We are not reducing emissions. We are offshoring them. There really is little sense in striking out to reduce greenhouse gases unless the rest of the world joins us.

So, could Commissioner Oettinger’s comments signal the end of the current debate?

Not if the UK government has anything to do with it. Just yesterday the Energy and Climate Secretary, Chris Huhne, in a speech to the Royal Geographical Society[3], called for “more ambition” by “pushing hard for a higher EU emissions target – a 30% reduction by 2020 – to drive innovation in Europe.

Presumably he knows something we don’t. And he does. The cost to the UK economy. While the Rt Hon Huhne crusades for tougher targets, his department has yet to inform us of the cost to the UK’s fragile economy.  Luckily, the European Commission has been a little more democratic with the truth. It has calculated that a move to the higher target would cost about €81bn (£68.4bn) a year by 2020, or 0.54% of GDP, compared with a cost of €48bn for the 20% goal.

This could be an expensive outsourcing exercise. 

It appears the government is trying to make good on its manifesto pledge to increase the proportion of tax revenues accounted for by environmental taxes.

This week Treasury commenced a unique consultation exercise on environmental taxation. It held one of a number of workshops looking at how fiscal instruments can help shape behaviour change to meet environmental policy objectives. I say unique because Treasury rarely organise events of this ilk, which are commonplace in other departments. It is, to be honest, a breath of fresh air.

We were asked what would be a “fair” environmental tax. How effective are existing environmental taxes in changing behaviour? What existing taxes could be made “greener”? And what new “green taxes were introduced?

And we were treated to not one, but two government ministers:  Economic Secretary to the Treasury Justine Greening and Chief Secretary to the Treasury, Danny Alexander. The results, we were told, are to feed into a programme of work on environmental taxes which will influence the budget and policy making beyond.

Environmental taxes have proven to be effective provided they are visible, well-targeted and with a clear trajectory which provide time to plan and adapt. If designed correctly they could prove to be a powerful incentive for change, as argued in our climate report which calls for a carbon tax to replace layers and layers of poorly connected and over-designed and costly climate change policies.

But the government must be wise to growing cynicism amongst manufacturers. Before being elected in, the Conservatives promised that any additional revenue generated from new green taxes would be used to reduce the burden of taxation elsewhere. Yet anyone in the Carbon Reduction Commitment will roll their eyes at the latter. The decision not to recycle revenues generated from the scheme means an extra £1 billion for the Chancellor’s coffers. Not a bad haul for a scheme that was originally sold to us as being revenue neutral to business.

In light of this u-turn, it is therefore not surprising that there is a healthy degree of scepticism that this exercise is just a means for additional revenue-raising. So if government genuinely wants business buy-in on this agenda it must ensure – now more than ever – that it stays true to its promise to reduce the burden elsewhere. 

Let me know what you think.

EEF welcomes the government consultation on changing certain aspects of the CRC Energy Efficiency Scheme, as a first step in unravelling the complex, confusing and costly, broader climate change policy landscape.

Commenting, Gareth Stace, Head of Climate & Environment said “this extended window in the run up to the second phase will allow government to make more strategic changes to the wider climate change policy landscape, rather than tinkering around the edges in a piecemeal fashion. If government doesn’t address the issue from a more macro level, then we are in danger of increasing complexity, not reducing it, both for CRC and other climate change policy measures.

“Government now has the chance to get it right and act upon its rhetoric of certainty, simplicity and transparency in order to accelerate the move to a low carbon economy, by sending the right signals to manufacturers and to the market. To this end, government should look to the forthcoming consultation for reform of the Climate Change Levy as inestimably linked to any changes made to CRC.

“Manufacturers believe that government must view any new climate change measures and taxes in the totality of the many costs pressures on business and must not be seen in isolation.”

EEF previously expressed concern that allowance revenues from the CRC Energy Efficiency Scheme, projected to be up to £1 billion a year, will be used to support the public finances rather than recycled to CRC participants. We said in the strongest terms that it sent a worrying signal about how the government intends to engage with the private sector going forward.

EEF welcomes the government decision on the dropping the requirement for organisations who are not required to register as participants to make information disclosures. Saying, “This is a logical step towards simplification. Companies have wasted valuable time and thousands of pounds, just proving to the Environment Agency that they are not caught by CRC. This was bureaucracy gone mad.

“Overall, this consultation should be seen as the start of CRC simplification, not the end.”

I read in the ENDS Daily yesterday, something that I can’t see happening here. The German government changed its policy on energy taxation in order to “secure jobs”.

Instead of taxing energy intensive sectors, emerging from the worst recession in decades, the coalition government is proposing an increase in tobacco duty.

Plans to introduce a five fold increase of the energy tax were significantly scaled back, along with keeping a reduced rate of the tax to a minimum for the most energy intensive sectors.

Do you think that HM Treasury were thinking about “securing jobs”, when it decided to keep the CRC revenue, rather than recycle it back to businesses and schools, or indeed increase the amount of Climate Change Levy that businesses will pay from April 2012.

When I meet my German, or for that matter, Japanese colleagues, they are astonished how little, compared to their governments, the UK supports industries making primary materials.

Of course, there is a despaired need for global GHG emissions to be cut and cut soon, but governments must acknowledge that in order to achieve this, we need a strong, vibrant and investing manufacturing sector here in the UK.