Double the climate levy, says think tank

A doubling of the climate change levy, greater transparency over climate change agreements (CCAs), tougher energy efficiency standards for buildings and stronger fiscal incentives for fuel-efficient vehicles and biofuels are among measures needed to put the Government back on track for its carbon dioxide reduction targets, according to a report for the Institute for Public Policy Research.1

It has become increasingly clear that the Government is badly off course for its long-standing target to reduce the UK's CO2 emissions by 20% between 1990 and 2010.

Emissions have increased in three of the past four years, and still stand at broadly the same level as in 1997 (ENDS Report 351, pp 11-12 ). Moreover, the Department of Trade and Industry's latest energy forecasts - which make an optimistic assessment of the effectiveness of many abatement policies - admit that CO2 emissions in 2010 are likely to be only 14-15% below 1990 levels (see p 25 ).

The IPPR's report, written by leading renewable energy expert Catherine Mitchell and former Greenpeace campaigner Bridget Woodman, suggests that the true picture is even less encouraging. It offers a qualitative assessment of the major strands of the Government's climate change programme, launched in 2000 - and concludes that "the policies in place so far have met with, at best, limited success."

Dr Mitchell argues that "development of the UK as a low carbon economy requires fundamental changes to the energy system, not just tinkering with the existing structures." Blaming the slow progress towards the CO2 target on the design of individual measures "would be an overly simplistic conclusion."

The report calls for climate change to be given precedence over short-term economic objectives and competition policy - with responsibility for delivering targets being handed to a new unit in the Cabinet Office answering directly to the Prime Minister.

Ministers have confirmed that they will consider the need for additional measures in the forthcoming review of the climate change programme, which is due to be finished by the middle of 2005 (ENDS Report 356, pp 4-5 ). The report by the IPPR, a left-leaning think tank with close ties to New Labour, proposes a range of candidates:

  • Industry: The Government expected the climate change levy to reduce emissions in 2010 by 2mtC (million tonnes of carbon), with the CCAs delivering a further 2.5mtC.

    However, the report notes that the levy rates have not been increased since its introduction in 2001, and "there is little information available" on the levy's real impact. It argues that the levy should be doubled over the next five years, with matching cuts in employers' national insurance contributions, to bring it into line with the Treasury's central estimate of £70 per tonne for the social cost of carbon.

    The recommendation is unlikely to be popular at a time when industry is already suffering from high oil and gas prices. Digby Jones, director general of the Confederation of British Industry, was quick to describe the proposal as "bizarre".

    As for the CCAs, the massive over-compliance in the first period raises "serious questions about the validity of the baselines set" (ENDS Report 339, pp 23-26 ). The Government's move to extend the CCAs to other sectors "is questionable without a clear evaluation of the success of the measure so far", the report says, and the Environment Department should have the new and renegotiated agreements independently audited.

    The report says "it is deeply disappointing that the Government has caved in to pressure from industry" by increasing the allocation for the first phase of the EU emissions trading scheme (see pp 22-25 ). The move will make achieving the 20% CO2 reduction target "extremely difficult".

    Finally, the report says, it is "difficult to assess" the effectiveness of the Carbon Trust's programmes - and whether the Trust will be able to meet its emission reduction target, which was doubled earlier this year.

  • Renewables and CHP: It is "unlikely" that the Government's renewable energy target for 2010 will be met, the report says, while the renewables obligation and capital grants are failing to bring forward technologies other than wind power.

    The report calls for a performance-based mechanism such as a "feed in" tariff to run in addition to the obligation in order to provide a guaranteed market for less developed technologies. It also backs calls for a biomass heat obligation, and for measures to value renewable electricity which is not sold to suppliers.

    The Government also needs to recognise that combined heat and power is a "special case" which merits support, possibly through a CHP obligation.

  • Energy efficiency: The report accuses the Government of failing to deliver the promised "step change" in energy efficiency. Indeed, the recent energy efficiency action plan reduced the target for savings from the domestic sector (ENDS Report 352, pp 45-46 ).

    The report argues that the existing programmes - the energy efficiency commitment (EEC) and Warm Front - appear to be successful and should be extended. However, limited monitoring and uncertainty about the effect of "comfort taking" means that the true level of carbon savings achieved is "uncertain" (ENDS Report 355, p 4 ).

    The potential for energy services companies has not yet been exploited. The report calls for the current pilot scheme to be made more ambitious (ENDS Report 347, pp 49-50 ). It urges the Government to consider requiring energy suppliers to provide energy services, with penalties for non-compliance, and to set a target for installing advanced electricity meters.

    The Government is currently consulting on tightening up the building regulations to improve energy efficiency (see p 57 ). However, the IPPR report warns that the energy efficiency action plan offers no action to tackle "poor enforcement" - meaning that the regulations' effectiveness is "extremely limited". The Government should "commit to a target of zero net emissions from new buildings by 2015."

    The £50 million Community Energy scheme, which supports district heating, is "derisory" in light of the huge potential (ENDS Report 333, pp 13 ).

  • Transport: The Government has already admitted that key measures in the transport sector - notably the ten-year plan for transport and the voluntary agreement with car makers on fuel efficiency - will deliver much smaller carbon savings than originally hoped (ENDS Report 351, pp 10-11 ).

    The report calls for fuel duties to be revised to reflect a fuel's CO2 emissions. Moreover, the recent three-year alternative fuels framework needs to be extended to a decade to provide more certainty for investors, and a biofuels obligation should be used to ensure they account for 5.75% of fuel by 2010, the indicative target set by an EU Directive (ENDS Report 352, pp 46-47 ).

    Finally, vehicle excise duty differentials should be "increased to levels where VED becomes an effective policy mechanism in reducing emissions."

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