Shaping tomorrow's energy policy
April 1st 2006 Alan Aldridge, director of ESTA looks at the issues raised by the Energy Review he Energy Review that the Government is currently conducting will shape energy policy for the coming decade if not longer. It is concerned with the long term shape of the energy industry and the need to move to a low carbon economy. It is perhaps unfortunate that other parallel consultations are 'muddying the waters'about the decisions that need to be taken. The Climate Change Review seems to have pre-empted some of the options outlined in the Energy Review, while the Chancellor's Stern Review on the economic impacts of climate change will not report till much later in the year.
Be that as it may, the Energy Review has certainly opened up discussion on the full range of options available. Despite the national media's almost exclusive interest in the question of nuclear energy, a number of other issues - of far more immediate interest to business - were also considered. It was to these on which ESTA focussed its submission to Government.
We at ESTA feel that there should be a 'hierarchy' of preferred measures. Energy conservation and energy efficiency should be at the top - this would provide some continuity with the themes set out in the 2003 Energy White Paper, as well as being eminently sensible and cost effective. This would also reduce emissions and cut demand, reducing our vulnerability to any future shortages of imported fuels. Such a focus would be good for jobs in the UK and for technology development.
The promotion of renewables should come next as these offer long-term solutions to the problem of zero-carbon power, without any of the attendant issues associated with nuclear such as waste disposal and the threat of terrorism.
Low carbon sources such as nuclear should, however, be considered, as should fossil fuel plants equipped with carbon capture and storage (CCS) technology - or 'clean coal'as it is also known. Finally, in the short term before CCS is commercially available, any new fossil fuel power stations should be built with state of the art technology to minimise emissions.
Despite calls from think tanks such as the IPPR - and now the Leader of the Opposition - to ditch the Climate Change Levy (CCL), the Government has stressed its continuing commitment to it. The Chancellor and the Carbon Trust claim that the price signals it gives (it represented approximately 12% of energy costs when it was introduced) have led to improved energy efficiency.
However, recent fuel price rises make the Levy a very minor factor.
Much of the Levy is recycled to business the Carbon Trust and through Enhanced Capital Allowances for products on the Energy Technology List. We believe this is a very ineffective tax incentive.
Financially it is irrelevant to new construction and it is not nearly large enough to encourage users of existing sites to update their working but inefficient plant. The ETL is however an effective procurement tool which could be used much further.
ESTA's proposal is to give organisations a choice, either: - pay the levy or
- use the levy amount for direct end user recycling by allowing end users to spend it on ETL approved energy efficient equipment or services. This would, for instance, allow SMEs to buy smart meters to assist them monitor the energy costs more effectively, or permit large users to install an effective monitoring and targeting system. This would be far more efficient than recycling the levy through the costly enterprise that is the Carbon Trust, and would raise implementation rates significantly.
We also believe that, if the Government is really serious about setting price signals to encourage business to be more energy efficient, it could use a building's energy rating to determine the level of business rates. An A-rated building would pay, say, 50% of standard whereas a G-rated building would pay 150%. This can be organised to be revenue neutral and would encourage poorly performing sites to become 'good corporate citizens'.
However, this will depend on the Government getting its act together and actually implementing the Energy Performance of Buildings Directive (EPBD) - which it is required to do by European law. Until that happens, there will not be any building energy ratings. Here, the Government is relying on spin again: it is asking business what more can be done, yet it is still refusing to do what has already been agreed.
Perhaps this is partly due to the fragmented nature of energy policy - split between Defra, DTI, the Treasury, ODPM and occasionally the Cabinet Office. Until there is a single voice - a Minister for Energy and Climate Change with a seat in the Cabinet, we are liable to see continuing dithering on an issue which is now acknowledged to be of prime importance. More articles from ESTA:
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