The targets under Climate Change Agreements (CCAs) should be significantly tightened and should require absolute reductions in companies’ carbon dioxide emissions, the Environmental Audit Committee said in a report published in March.1
The Environmental Audit Committee thinks that the targets set by government have not been demanding enough and calls on the Environment Department (DEFRA) to ensure they are "considerably toughened" when it reviews them later this year. But it also wants government to provide grants and loans to help firms become more energy efficient and increase public investment in low-carbon technologies.
The committee was disappointed that DEFRA did not tighten the targets more when it last reviewed them in 2004, and called for more frequent reviews to allow targets to be adjusted after each milestone period.
The MPs also recommended that the CCAs be based on absolute reductions in carbon emissions rather than improved energy efficiency against business-as-usual projections. They point out that the projections are inherently uncertain and add complexity. Absolute targets would be much more straightforward and transparent, they say, and would bring the agreements into line with other key climate measures affecting business: the EU emissions trading scheme and forthcoming carbon reduction commitment (see pp 46-47 ).
Industry, however, favours relative targets based on output because they allow emissions to rise as businesses grow. The Committee is not impressed with this argument given that the UK is committed to absolute cuts by the Climate Change Bill: "Any sector of the economy whose emissions are allowed to rise exacerbates the problem and increases the pressure on all others to cut theirs," it says.
But it does recognise that some sectors will find it easier to cut emissions than others, so the targets should recognise each sector’s ability to cut emissions.
The committee does not think that the Climate Change Levy has worked as well as planned. It refers to an assessment of the tax by the National Audit Office last year that concluded it was no longer a major driver of energy efficiency (ENDS Report 392, pp 11-12 ). The NAO said that most of the levy’s impact stemmed from it focusing businesses’ attention on energy use, rather than from sending a strong price signal.
The MPs think that this has implications for broader climate policy. It suggests that economic signals such as the levy on their own are not enough to encourage a change in behaviour and they need to be supplemented with additional action and incentives to make a difference.
The committee also questions whether the levy is indeed revenue neutral. Businesses received an initial 0.3% cut in national insurance contributions to offset the cost of the levy when it was launched, but the Committee notes that the following year NI contributions were increased by 1%, more than wiping out the initial cut.
The committee wants to see the government put much more money into tackling climate change. It accepts that, on top of the NI cut, some of the levy revenue is recycled to climate measures like the Carbon Trust and Enhanced Capital Allowances for low carbon products, but it says the link is not clear. It estimates that just 10-15% of the levy is recycled this way.
The report argues that these measures have been effective and there is huge demand that cannot be met by the current level of funding. It says much more of the levy revenue should be earmarked for climate measures.
"We note that the climate change levy brings in around double the amount in each year that the government’s new domestic environmental transformation fund will spend over three years," say the MPs. "We recommend funding for the Carbon Trust and the domestic environmental transformation fund is increased to match or go beyond receipts from the climate change levy.