§ 2.56 p.m.
§ Lord Ezra rose to move, That this House takes note of the report of the European Communities Committee on Energy and the Environment (13th Report, Session 1990–91, H.L. Paper 62).
§ The noble Lord said: My Lords, in moving that the House takes note of the Report on Energy and the Environment, I wish to declare an interest as I am chairman of a group of companies concerned with the distribution and usage of energy. I have in fact been continuously involved in the energy sector since 1947.
§ This report is the result of a five-month study by Sub-Committee B. Four documents were under scrutiny: a Commission discussion paper on Energy and the Environment, from which the report derives its title; a proposal for a SAVE programme (SAVE stands for Specific. Actions for Vigorous Energy Efficiency) on which the inquiry concentrated; and two specific directives on energy requirements for hot water boilers and for a labelling scheme on the energy consumption of household appliances. I should like to take this opportunity to thank the many witnesses who gave evidence to our committee. I also thank our specialist adviser, Professor Ian Fells, Professor of Energy Conversion at the University of Newcastle Upon Tyne, for his valuable assistance, and our clerk, Mr. Edward Wells, for his effective organisation of our work and the preparation of drafts.
In its communication, the Commission claims that:
issues of energy and environment policy have become inextricably linked".
Energy efficiency is identified as:
perhaps the single most influential aspect of energy policy".
§ That viewpoint is also contained within the Government's environmental strategy document which was issued last year, known as This Common Inheritance, and this debate coincides with a major publicity campaign just launched by the Government emphasising the importance of increased energy efficiency in the face of the threat of global warming. Today's debate is therefore very timely.
§ The SAVE programme includes a series of directives to be introduced over the next two years as part of a five-year programme to help the Community achieve its stated objective of a 20 per cent. improvement in energy intensity (the ratio of energy consumption to GDP) by 1995-so a 20 per cent. saving by the year 1995. The committee gathered evidence, from a wide range of individuals and organisations with experience in this field. They were particularly impressed by witnesses from the Danish energy ministry, which has a first-rate record on energy efficiency and has invested a great deal in developing such techniques as combined heat and power or co-generation schemes which are efficient in 408 both demand and supply. The evidence that the committee received focused largely on demand-side measures. However, I emphasise that there is still an important contribution to be made by improvements in efficiency of supply.
§ The committee was invited to visit the Electricity Research and Development Centre at Gapenhurst and wishes to thank its hosts for their hospitality and for the opportunity to see some of the innovative work carried out.
§ The report includes a prediction by the World Energy Council that energy demand will double by the year 2020 and treble by the year 2030 even after taking account of a significant element of energy efficiency. Recent events in the Middle East have demonstrated the importance of protecting the security of future supplies. Although the rapidly expanding economies of the developing world will make an increasing contribution, the figures show that the industrialised OECD countries dominate world production of carbon dioxide, the major greenhouse gas. It is right then that the member states of the European Community should take this initiative to promote energy efficiency which has the leading role to play in the medium term to cut such emissions. Witnesses claimed that there is now an environmental imperative to save energy. The committee agrees.
§ Without further action, the Community will fall well short of its efficiency targets. The United Kingdom is committed to stabilising its CO2, emissions at 1990 levels by the year 2005. By contrast the Dutch aim is to reach this target by 1995. Therefore we are lagging a little behind some of our European partners.
§ Between 1982 and 1988 Britain's record on reducing energy intensity was ahead of the Community average, but much of the improvement was due to the contraction of energy intensive industry. The market for energy-saving equipment has suffered a recent serious and dramatic decline. For example, companies selling double glazing, heating controls and cavity wall insulation have not enjoyed a single quarter's upturn for a number of years. The recession explains some of that decline. But perhaps of greater significance are the relatively low energy prices in real terms. There is also evidence of a short-term approach to energy saving investments which inhibits long-term investment for that purpose.
§ It soon became clear to the committee that, in terms of final energy consumption, buildings and transport are the two largest areas in which savings can be made. Because of time constraints we did not examine the transport sector, but considerable savings can clearly be made there. The witnesses said that the retrofitting of existing buildings—improving insulation standards for buildings—offered one of the greatest potentials for savings. We were told that about 5 million homes in Britain have little or no insulation. While it is estimated that some 90 per cent. of homes now have loft insulation, much of it is inadequate by present day standards.
§ Building regulations, which have been tightened recently, are of limited significance since new building in Britain represents less than 1 per cent. of total 409 building stock, and the regulations are still below those of other European countries. Indeed, in Britain we are only now reaching standards achieved in Sweden in the 1930s.
§ Many on low incomes are most vulnerable to fuel poverty and do not possess the necessary capital to invest in efficiency. They are more likely to rely on electric heating, which tends to have a lower capital cost than gas but which costs more to run. The Government's home energy efficiency scheme, recently transferred to the Energy Efficiency Office, is designed to help such people. Its current budget of £27 million has been increased to £40 million for 1992–93 and we are told that there will be further increases in the following two years. Those increases will allow 250,000 homes to be insulated next year compared with 200,000 at present. I am very interested in that effort as I am connected with an organisation known as Neighbourhood Energy Action which carries out that insulation. I am glad to say that other Members of your Lordships' House, including the noble Baroness, Lady Ewart-Biggs, and the noble Lord, Lord Gray of Contin, are also involved. That increased effort is much to be welcomed, especially since the committee was concerned that the Government appeared to be cutting the overall budget of the Energy Efficiency Office.
One way of stimulating energy efficiency in existing homes would be by a system of energy rating or certification. That is widely practised in Denmark. We understand that there are two systems under consideration in Britain. The committee considered it important that a single system should soon emerge and be applied. The Government have said that they will consider,
any EC proposals for home energy certification when they are made".
§ It therefore looks as though such a system is a practicable possibility.
§ Much of the Government's efforts to date have been directed towards removing the barriers to the market in energy saving. The increased resources put into the home energy efficiency scheme represent a more positive measure. More such measures are required. We were told by the overwhelming majority of our witnesses that market forces alone would not produce a level of saving sufficient to meet the agreed objectives. The Community's SAVE programme proposes three categories of positive action: technical measures, financial measures and measures to influence consumer behaviour. We agree that all three are needed. Much of the responsibility for energy saving rests with individual consumers. The advertising campaign launched on 6th November demonstrates that the Government are now making a major effort to get the message across. However, people still do not sufficiently recognise the link between protecting the environment and energy efficiency.
§ More also needs to be done by the energy supply industries to stimulate energy saving. The committee was concerned that the way in which the gas and electricity industries were privatised did not enable the 410 concept of least cost planning, which is extensively practised in the United States, to be applied in this country. However, there is some evidence that the energy supply enterprises are beginning to provide a better service to consumers on energy saving. The electricity companies are introducing on a voluntary basis labelling schemes for the white goods that they sell; and British Gas now labels its appliances. The controversial boilers directive has now been amended to take account of the unusual nature of the United Kingdom domestic heating market, and that should make a significant contribution to improved efficiency.
§ The committee also took evidence on combined heat and power. The Government have said that that technology has an extremely promising future. They expect CHP use to double by the year 2000. However, that will still mean that only 6 per cent. of total generated capacity is derived from that technique compared with, for example, 38 per cent. in Denmark which arguably leads the world in that technology. The Committee would like to see very much more effort put into this area. I wish to refer to an issue currently with the Secretary of State for Energy which could have a major impact on the future development of CHP generation. It concerns the way in which charges for on-site generation will be fixed in relation to the electricity pool. It is a complex issue but if the charges are fixed too high, an undue burden could be imposed on CHP generators.
§ The committee was also told about the potential for third-party financing or contract energy management especially in the public sector. This can help investment by reducing the risk element. In their response to our report the Government say that Treasury approval is still required for all such investment in the public sector of more than £250,000. We would welcome an assurance that the Treasury will not seek to obstruct future schemes, even if they exceed the proposed level. Such schemes can offer great advantages to hospitals, schools and other public buildings.
§ We understand that the Commission has recently put forward proposals for an energy tax as part of its strategy for limiting carbon dioxide emissions. In our report we rejected the introduction of such a tax as a blunt instrument which would hit all consumers indiscriminately. That is the case whether those consumers are intensive energy users, such as the chemical and steel industries, or people receiving low incomes. The committee will wish to look carefully at any such proposals once they are formally submitted. It will favour a more specific use of fiscal measures; for example, the removal of VAT from energy-saving equipment and materials on a Community-wide basis to remove the anomaly which exists whereby energy efficiency is taxed and energy consumption is zero-rated. We are aware that the sixth VAT directive restricts additional zero-rating but we believe that the environmental imperative, which the Commission fully supports, demands such action. Another fiscal measure that we would support would be special depreciation allowances for capital investment in energy-saving plant applying in particular to industry.411
§ I believe that we can reach four broad conclusions as a result of our report. First, there is undoubtedly an energy efficiency gap—certainly of the order of 20 per cent. and probably considerably more. Secondly, it is now increasingly urgent that this gap should be closed. Energy saving was previously an option. With the risk of global warming it has become an imperative. Thirdly, market pressures can go only part of the way to close the gap. They will need to be buttressed by measures of a fiscal and regulatory nature. Fourthly, the main effort will need to be undertaken at national level. But because of the international implications of much in the energy sector and with the advent of the single market there will also be a major role for the European Community. The SAVE programme, which is the subject of this report, describes that role and is generally to he welcomed. I beg to move.
§ Moved, That this House takes note of the report of the European Communities Committee on Energy and the Environment (13th Report, Session 1990–91, H.L. Paper 62).—(Lord Ezra).
§ 3.14 p.m.
§ Lord Cockfield
My Lords, I imagine that the reason why I have been given so prominent a position in the list of speakers is that I am not a member of the committee. Therefore, perhaps I may be the first to congratulate the noble Lord, Lord Ezra, and the commit tee on a valuable, thorough and workmanlike report.
The report arises as a result of the environmental imperative. However, that ought not to blind us to the enormous economic advantages of efficiency in the production and use of energy as regards efficiency in the industry, the reduction in investment required to support the production of energy and not least in reducing the world dependence on Middle Eastern sources of oil. I hope that concentration on environmental issues, the importance of which I do not deprecate in any sense does not lead us to overlook those other matters.
There is a particular point on which I part company with the noble Lord and the committee. I am sceptical about fiscal incentives. It is one thing to remove fiscal barriers but all experience shows that the moment that one introduces fiscal incentives, one incentive leads to another. Finally, one has a tax system which is encumbered by large numbers of incentives, tax havens, special provisions and so forth. The net result is a much higher nominal rate of tax than would otherwise be necessary. The experience of the 1980s has moved in the opposite direction; namely, removing incentives, tax shelters and other special provisions in order to bring down the overall rate of taxation.
The issue to which I wish to refer in particular was lightly touched upon by the noble Lord, Lord Ezra; it is the Commission's recent proposal for an energy tax. Perhaps it is unfortunate that the report deals primarily with a communication from the Commission to the council in 1989. The report of the committee is dated June 1991 and we are now discussing it at the beginning of November.
412 Only a few weeks ago the Commission produced a detailed document on an energy tax in this connection. There has been difficulty in laying one's hands on the document. On Tuesday of last week—appropriately 5th November—my noble friend Lord Campbell of Croy asked a Question relating to it. Afterwards he told me that he had not seen the document, and from the nature of the replies given by the Minister I imagine that he had not seen it either. Nevertheless, it is a formidable document amounting to about 50 pages. It is of great importance not least in relation to this report. The conclusion of the communication—which appears to be dated the end of September or early in October, although I cannot quote the date because I have been unable to lay my hands on a copy of the document—is that the measures suggested in the report are insufficient to meet the targets that have been set, in particular on carbon dioxide emissions.
I noted that in the report and in his speech the noble Lord, Lord Ezra, rejected what he described as a carbon tax. The tax now suggested by the Commission—and it is important to point out that its status is only that of a suggestion because no formal proposal has been put forward—is a combined energy-cum-carbon dioxide tax modulated in various ways according to the extent to which one directs the tax to the energy or the carbon content.
The really important point is that in the report the committee dismissed what it described as a carbon tax—I must repeat the point that the tax proposed by the Commission is not a pure carbon tax—on the ground that it would be indiscriminate. The trouble with the proposal now put forward by the Commission in its latest paper is not that it is indiscriminate but, on the contrary, it discriminates very heavily, and in particular it discriminates against coal and industries such as the chemical industry which rely heavily on the consumption of energy. In fact, as I understand the proposals, the effect on the coal industry would be disastrous in terms of prices, relative prices and output.
As no doubt noble Lords are aware, only two member states of the Community now produce coal on a significant scale: the Federal Republic of Germany and the UK. The difference between us is that the Federal Republic heavily subsidises its coal production while we do not. It would be a very unfortunate effect if, as a result of imposing a tax of the kind which is now suggested by the Commission, we find ourselves back to believing that we have to subsidise coal production. That would be absurd.
I mention that point because I believe that it is very urgent that the Select Committee should examine those proposals at the earliest possible date. I am not suggesting that my interpretation of what is put forward is necessarily complete or even accurate, but the proposals raise serious questions which would have an important effect on one of this country's major industries.
Having said that, once again I pay tribute to the work done by the noble Lord, Lord Ezra, and the Select Committee on the papers which were put before them.
§ 3.24 p.m.
§ Lord Varley
My Lords, I am pleased to have an opportunity to follow the noble Lord, Lord Cockfield, because he has raised important points about the so-called carbon tax. I hope to mention those later in my remarks.
I too begin by paying tribute to the noble Lord, Lord Ezra, for the clear and cogent manner in which he introduced the report and presented it to the House. It has left little to say for the rest of us who were Members of the committee. However, I congratulate him and can testify that his chairmanship was superb and carried out with great skill—skill which I expect having known him for over 25 years.
There is no doubt that governments of both major political parties over the past few years have made a substantial contribution to the better use of energy and its conservation, certainly over the past 17 years. Over the weekend I thought that I would refresh my memory about what the Government said in 1974 about energy conservation. Your Lordships will recall the last three months of 1973 following the Yom Kippur war. The two previous decades of easily obtainable cheap oil was not only drastically restricted but its price was quadrupled. At that time not a drop of our own oil was coming from the North Sea. Seventeen years ago the Department of Energy set up an advisory committee on energy conservation under the distinguished chairmanship of the Cambridge professor, Sir William Hawthorne. The Central Policy Review Staff under the guidance of Lord Rothschild was asked to produce a detailed study and publish a report on energy conservation. The Department of Energy and the advisory council together with the CPRS, all those years ago, produced reports and recommendations which, with some minor exceptions, would sit very well alongside the Select Committee's report and the European Commission's proposals which we are considering today.
I looked at the Statement I made to Parliament on 25th June 1974 about setting up the Advisory Council on Energy Conservation. The major difference between the aims and aspirations then and now is that I did not mention the word "environment" once. At that time the preoccupation or starting point for conservation was all about security of supply and trying to contain price.
As your Lordships' Select Committee rightly highlights, the environmental imperative, as mentioned by the noble Lord, Lord Ezra, is to save energy. That is the top of the list of priorities. In fact, as the noble Lord said, there has been a fall in the real price of energy since the mid-1970s plus the fact that we have had the tremendous benefit of our own North Sea oil.
The Commission's target to reduce energy intensity over the next four years by 20 per cent., and a further 12 per cent. over the following 15 years, is extremely ambitious for an industrial country like our own, as is the UK's commitment to stabilise carbon dioxide levels and emissions at 1990 levels by the year 2005. If both those targets are to be achieved, very bold and imaginative measures are needed.
414 A whole range of measures are proposed which basically fall into two categories: the easy decisions (and there are always easy decisions); and the difficult and potentially politically unpopular decisions. I see no great problem in regulating for efficiency standards for heat generators, labelling domestic appliances, periodic inspections of boiler efficiency and tightening new building regulations. In many respects such measures will be regarded as overdue, worthwhile and sensible. For example, tightening new building regulations would touch upon only 1 per cent. per year of our building stock out of a total of 15 million houses in Britain. That is a minute proportion. Therefore, the real contribution to energy saving will come through the potentially unpopular and costly political decisions by the Commission and the member states.
Of course, those decisions will contribute most to energy saving and environmental improvement. They are the most controversial. As has been said, transport was excluded from the Select Committee's inquiry although it is included in the Commission's SAVE programme. As I understand it, it was excluded from the Select Committee because of the time factor involved. Nearly half our country's energy bill is spent on transport, and 76 per cent. of that on the road sector. Governments can fiddle around with petrol and diesel taxes, vehicle excise duties, speed limits and company car taxation; but in the context of a rapid reduction in that huge bill, that is all peripheral. I do not know many managing directors or company directors of large firms who have taken smaller company cars as a result of the reduction in company car taxation. However, I know many people who ' witness the increasing chaos on our roads and who wish that there were massively increased expenditure on public transport, particularly British Rail and the London Underground.
Another area which was given great consideration by the Select Committee was the potential energy saving in buildings, especially our existing housing stock. The evidence given to the committee by Professor Smith of the Royal Institute of British Architects was devastating. The RIBA estimates that there are still 5 million homes in Britain needing quite rudimentary treatment. For example, the stopping up of draughts around windows and doors, and loft insulation. The RIBA concluded that it could not be done, "without substantial subsidies".
Unfortunately, but perhaps not surprisingly, the worst insulated homes in Britain are those occupied by people living on low incomes. It is not only poor insulation that they experience. They are the people most likely to use portable electric heaters. Of course portable electric heaters, while cheaper to buy, are the most expensive to run.
I hope therefore that the ministerial group on energy efficiency, which has just produced what I consider to be an excellent first annual report, will turn its attention to that vitally urgent problem. The group met on four occasions last year. I have some experience of ministerial committees. They start with tremendous experience and enthusiasm; everyone turns up for the first few meetings. After a while 415 excuses are given and members send either a substitute or an official, and sometimes the committees do not meet at all. I hope that this ministerial committee will have the power and enthusiasm to meet more regularly than some in the past.
One of the first tasks of the ministerial group should be to tackle the bizarre situation mentioned by the noble Lord, Lord Ezra, in which fuel energy for domestic use is zero rated for VAT—I am not advocating that domestic fuel should bear that tax—and the ludicrous anomaly that energy-saving equipment and materials carry VAT at 17½ per cent. I take the point made by the noble Lord, Lord Cockfield, regarding fiscal disincentives. A real incentive would be for either the ministerial group or eventually the Chancellor to do something about removing the VAT impost on energy-saving equipment and materials. It would also considerably help the low income groups.
Should the Government choose to help our depressed building and construction centre and reduce the number of workers with experience in the building trade who are unemployed, they could follow the advice of the Select Committee contained in paragraph 91 and do something in a concerted and systematic manner with regard to the 5 million dwellings in the UK which need major attention. Huge savings can be made. Something like one quarter of all energy used in this country is consumed in homes. I believe that paragraph 91 is the most important section of the report.
I wish to refer briefly to one other matter. It is the proposal already mentioned and increasingly heard that a carbon tax should be introduced. I understand that the commission formally proposed such a tax quite recently. I believe that the Select Committee was right to reject the introduction of a carbon tax which would be indiscriminate. As I understand it at the moment, it would discriminate differently against different fuels and certainly bear on the individual house owner and those least able to afford it. I hope that the Ministers who still bear the scars of the indiscriminate poll tax will give the carbon tax short shrift if and when it comes before them.
The other impact of that tax would be to finish off forever the British coal industry. The proposal for a 30 per cent. increase in coal prices over the next four years and a 58 per cent. increase by the end of the century would wipe out British coal. It would not matter whether the coal industry was in public or private ownership; the impact would be the same. I believe that the coal industry is already in danger of falling below a level of production which would not be in our national interest.
The answer to problems of CO2 emissions from coal can only be tackled, as the Select Committee on Energy reported in another place, by the greater and consistent research and development on clean coal technology where great strides have been made and where we are capable of leading the world. Coal is still the country's largest and longest life fuel reserve. The technology exists to deal with it and with the problems of burning it.
416 I believe that the Select Committee made a useful contribution to the energy conservation and environmental debate. I have no doubt that when the commission produce the proposals for carbon tax, Sub-Committee B of the European Communities Committee will turn its attention to it. However, the committee made a good start; given the experience of the past 17 years or so, I am sure that it is a subject to which we shall return again and again.
§ 3.35 p.m.
§ Viscount Mersey
My Lords, I should first like to summarise the thrust of what I want to say today. It is this: in future we must pay more for our energy. That will have two advantages. First, if we paid more we would use less and conserve. Secondly, if we paid more cleaner supply systems would become competitive. I speak of wind, tidal and solar power. I must declare an interest: I am president of the Combined Heat and Power Association. I shall therefore be making a special plea for clean and efficient technology.
First, I turn to the question of paying more for energy. I had in mind the introduction of a carbon tax. That puts me at odds with the rest of my committee for at paragraph 86 of the report we reject the carbon tax as too blunt an instrument. However, the Government in their reply disagree with that. They regard a carbon tax as an option, provided other European Community countries are equally taxed at the same time. Moreover, as my noble friend Lord Cockfield said, the European Energy Commission proposes a carbon tax and requires three groups of Ministers from each country to discuss it. Indeed, a joint council of environmental Ministers will meet to do so on 10th and 11th December immediately after Maastricht.
In the debate so far it has been said that perhaps a change in VAT would be a better idea. That is fine by me; that would be just as welcome provided it had the right effect. Either tax would fall in with the committee's main recommendation that energy efficiency should be demand led. At the moment we in the United Kingdom use energy comparatively inefficiently. A government poster of trying to fill a sieve with boiling water just about sums it up.
If we are to attack global warming the solution is not so much a fancy tidal barrage as better loft insulation, a thicker sweater or switching off a light, a photocopier or a fire. The solution to the greenhouse effect is rather mundane. It is not a mighty wind farm on the Pennines. It is more thermal underwear. At the moment we in the United Kingdom treat energy almost as though it were free. As our committee so ably puts it in paragraph 65, "Cheap energy encourages waste". If it cost more we would not waste it and that is the justification for some form of tax. Tax the cheaper creators, which are the dirty ones, and the expensive ones will become more competitive.
As the noble Lord, Lord Ezra, said, the most interesting country in the Community from the energy point of view is Denmark. It is both less and more fortunate than we. It is less fortunate in that it has never had cheap fossil fuel and power. It is more 417 fortunate in that that has resulted in the cleanest technology in Europe. Thirty-eight per cent. of Jutland has combined heat and power. The new CHP plant in Copenhagen is the finest in the world. The pipe insulation is so fine that it is possible to run out 40 kilometres of loop pipe and only lose 6ºC when the water returns.
The cost of electricity is around 9p per kilowatt hour. Electricity in Denmark has always been expensive. Thus the Danes use it with care: they do not waste it and they put up with considerable inconvenience. A new district heating loop was being laid in the town of Herning when I was over there. That is a big operation. The pipes are around two feet in diameter. Not a lot was left of people's front gardens after the pipes had been dug into place. I admired the tolerance of the Danes and wondered whether the British would put up with such inconvenience, used as we are to cheap and easy fossil fuel.
There is a strange caveat about Denmark; it comes from Sweden. It is that energy is so expensive in Denmark that heavy industry does not locate there. It locates instead in Sweden where there is cheap nuclear power combined with excellent insulation. This is no moment to enter the nuclear debate, but Denmark did strike me as being a slightly poorer country than Sweden. The conclusion I draw at least is that our Government are prudent when they reply to our report saying that we could only introduce a tax if all other countries introduced the same tax at the same time; otherwise we would be at a grave disadvantage.
Denmark has the highest proportion of CHP in Europe. The rest of Scandinavia also has schemes on a scale unheard of in this country. Most of the stations powering them are clean and small. For example, near Helsinki I looked over a power station of around 8 megawatts that was portable. There were three or four Portakabins and a gas turbine. You put it on lorries and take it wherever it is needed. You then just hook it up to the nearest Russian natural gas outlet.
However, I cannot claim that CHP is a panacea. In Poland its scale is huge and wasteful. The pipes leak and that makes it essential to heat the water to a colossal 200ºC, which is double the Danish temperature. Steam jets out everywhere. The system breaks down, quite likely in January. Then it starts up suddenly and room temperatures surge to 40ºC. The frozen Poles quickly become roasted Poles and throw wide their windows in the bleak mid-winter. Polish heating is by tradition free. There is no incentive to save or to make it efficient. It is not even metered. I mention that only to show that CHP itself can become a nightmare.
That reminds me of a very big problem. In Eastern Europe and Russia the problem with energy and the environment is so vast that even if we reduce our carbon dioxide emissions to zero the greenhouse effect would still continue. That is another can of worms that I would rather not open today. I would rather paraphrase Burke and say "The fact that we in the United Kingdom can do comparatively little to reduce global warming is a terrible excuse for doing nothing".
418 Our Government see a good future in combined heat and power, as the noble Lord, Lord Ezra, has said. They hope that we shall have around 4,000 megawatts by the turn of the century. That is not very much. I doubt that we shall even have that without government intervention. I have seen a smallish refuse burning scheme in Sheffield. I was told that it was more expensive to burn refuse than coal. But in Lyons a large part of the town to the east of the Rhône, has refuse fuelled combined heat and power. The French tell me that rubbish is cheaper than fossil fuel as it costs money to dispose of rubbish by landfill. That cost should be properly taken into account when working out the comparative costs of refuse and fossil fuels, which I believe is reasonable.
Interestingly, France also has few cheap fossil fuels. It is amazing how economic arguments can be tailored to suit the status quo.
We have a proposed refuse burning power station in Lewisham. At the moment it is no more than a hole in the ground for I understand that the area board is being offered extraordinarily cheap electricity by one of the two big generating companies. It is making an offer, so to speak, that cannot be refused. Here I shall be grateful if my noble friend on the Front Bench can tell us more about the situation in Lewisham and perhaps give us an undertaking that this refuse burning power station will come on stream in the very near future.
Most of our CHP schemes are at the factory, school or hospital level. Though such very small schemes are not to be sneezed at, they are dwarfed by French schemes in Lyons and Nice, just as those French schemes are in turn dwarfed by the area schemes of Sweden, Finland and Denmark. We are at the bottom of the European CHP league.
CHP is expensive to install, but it will become affordable in the United Kingdom, along with other clean technologies, if our factories and our dwellings are made energy efficient. That, as has been said by many noble Lords, is big money. We say so in our report in paragraph 91. There are 5 million dwellings requiring major retrofitting and another 10 million requiring lesser works. The average cost per dwelling is £2,500. The total is between £40 billion and £45 billion. The introduction of energy efficiency would be an act of great political courage; it would be inflationary. But we believe that the environmental imperative demands that consideration should now be given to action on this scale. It could be funded by some form of new tax.
There is a Murphy's law of energy. It is that the less you need it the more you waste it. Thus it would be reasonable to think that a Finn spent more on heating his house than a Sicilian simply because the temperature falls to minus 36° in Helsinki but does not do so in Palermo. In fact both spend the same amount. If you draw a line between Helsinki and Palermo, through Copenhagen, Hamburg, Munich, Zurich and Milan, it will be found that everyone spends around the same. As the need for heat decreases, so inefficiency increases. That is Murphy's law of energy. But we in the United Kingdom break that law. In terms of energy efficiency we should be level with 419 Antwerp, but we are not: we are much worse than that. We are level with Tunis. We really are not efficient enough yet. I urge the Government to take aboard at least our paragraph 91. That is the last paragraph of Sub-Committee B's opinion and it is the most important one.
§ 3.46 p.m.
§ Viscount Hanworth
My Lords, I was a Member of the ECC Committee which produced this report. It is commendably brief, but it is of great importance to the future reduction of carbon dioxide emissions—vital now at a time when the spectre of the greenhouse effect looms before us. How drastic it will be we do not yet know, but the message that we must do something now ought to be heard loudly and clearly by everyone.
Before carrying on, I should like to thank the chairman for an excellent report. While not in any way wishing to detract from those thanks, it seems to me that acknowledgements usually only go to chairmen when equal thanks should on many occasions be offered to the clerks to the committees and to other clerks who frequently manage to make a convincing and useful report of what might otherwise be termed a dog's breakfast. I myself wonder whether even in my younger days I could have approached their performance.
I return to the point of the debate. What the report calls the "savage" proposals seem to be very important for the future. However, in some areas nations could usefully implement them individually without waiting. Already Holland and Denmark have done that on matters where they can go ahead in advance of the EC directive. That is because, for example, a method of assessing house insulation may be part of their national policy which need not be held up during the certain delay implicit in getting an EC standard. Do not let the ideal be the enemy of the good.
In the circumstances one must ask the Government to be more forward looking. They should not simply rely on the EC proposals while other nations press ahead. There seems to be something wrong with the thinking of the Department of Energy. For example, I vividly remember that all my efforts to promote increased house insulation in new houses were simply dismissed as a matter for the market place. No, the importance of energy conservation means that the Government have an obligation to go down that path and to lead the market instead of being dominated by it. Market forces alone cannot make the policy that we need. I am afraid that the Government have really done nothing to encourage ignorant buyers who need to realise the merits of a more fully insulated home. There is no need to wait for internationally agreed methods of measurement on this simple matter as long as we agree on one, and only one, method of assessment for the UK.
I deplore the fact that the new Government building regulations have not taken underfloor insulation as a firm requirement for all new construction because it cannot easily be refitted. It can represent as much as 20 per cent. of heat losses from a house. Future generations will not thank us for this omission.
420 The SAVE programme talks about energy labelling. There are three appliances which consume a lot of energy; television sets, refrigerators and freezers, because they are used so frequently. All those are easy to assess. Washing machines are not so simple. Why do we not consider having even a minimum efficiency requirement for the first three? Once again, we should not wait for the EC proposals. We should be trying to promote the use of fluorescent light fittings in the household. Twenty watts are capable of giving the equivalent of a tungsten 100-watt bulb, with a life of over 10,000 hours. I know that the available types have not been designed to be compatible with the light fittings of many houses. The manufacturers need to consider this problem and design cheaper and more suitable alternatives.
Some people talk about increased expenditure on research and development for renewable energy. That may be very desirable—for example, the clean use of coal. But there is nothing on the horizon—apart from coal—to make this a major factor in the energy equation. Moreover, other countries are spending money on R&D. Always provided that we keep a small team in being here, we could, if necessary, take advantage of developments from neighbouring countries. In the meantime, many other useful things could be done pending EC legislation.
To conclude, I submit that a large proportion of our energy problems could be solved by nuclear generation. Why is it that so many people are so emotionally opposed to that solution? To me it is strange, for life is not safe, and the 60,000 deaths per annum on the roads in Europe far exceed the likely effect of any possible Chernobyl disaster. The disposal of nuclear waste is not a problem unless we try and make it so and talk about 1,000 years or more guaranteed containment. If the nuclear option is not accepted, then I suggest that the Government should be pressed to give financial guarantees to make the construction of the Severn Barrage a possibility and to promote combined heat and power for at least one large city demonstration project. Both of those are long term projects—hence they require Government help.
§ 3.56 p.m.
§ Lord Renwick
My Lords, the wonderful advantage of speaking last in a debate such as this is that one can disregard entirely what one has prepared because it has all been said. It has been an interesting debate and I should like to pick up one or two points. I should, first, like to congratulate the noble Lord, Lord Ezra, on his magnificent chairmanship of our committee, and on the way in which he made the proceedings so interesting. Also, I believe we worked at quite a rapid pace, because there was some imminence in the SAVE programme going before the Council of Ministers. In this respect I should like to thank and congratulate our clerks who advised us. I found the proceedings most interesting. In fact, the SAVE programme was delayed and I believe it was only in the last few days of October that it received the approval of the Council of Ministers.
421 We were expecting up to six directives by the end of this year. The fact that we have received only two may be because there is not a very large staff. That may be explained by the fact that it is intended that the SAVE programme should operate by delegating a lot of activities to member states. Perhaps my right honourable friend the Foreign Secretary will be glad that the SAVE programme itself will not be delving into the nooks and crannies but will operate by delegation.
Britain's two-year exemption from the directive on gas boilers is a little worrying. I am quite convinced that we can produce the best and most efficient boilers in the world because we have that technology. However, we also insist on producing less efficient boilers. I wonder whether a directive from the Commission is needed to prevent that? I understand that our accredited export of these less efficient boilers has been curtailed for two years, especially in the eastern part of Germany where they did not want such inefficient and environmentally unfriendly boilers.
Quite rightly, mention was made about the CO2 reduction strategy document. My noble friend Lord Cockfield suggested that our sub-committee should look at this. It is only a strategy document; nevertheless anything that comes from the Commission should be looked at as soon as it is conceived. I am sure that we shall keep a strict eye on this as a proposal before it becomes a directive.
The second directive is on energy labelling. I think it is worth putting in perspective for noble Lords who have been listening to this debate that some freezers actually use 50 per cent. less electricity than others of a similar capacity. I do not believe that that has been mentioned. Something else that has not been mentioned is that saving electricity really does have an effect because electricity is mostly generated at 35 per cent. efficiency. That means that three units of coal are used to produce one unit of electricity. Therefore every unit saved is magnified at the generating end by a factor of three. So there really is an imperative to be successful in the various programmes before us.
My noble friend Lord Mersey touched on a programme, which was mentioned in a debate in another place last week, on 5th November. My honourable friend the Parliamentary Under-Secretary of State for Energy produced the second stage of the Non-Fossil Fuel Obligation Renewables Order. The fuel derived from waste at Lewisham will come under that obligation. My honourable friend's statement was well received in another place, and we should be impressed that the Government are acting in this way to encourage renewables. About 50 per cent. of the renewable allocation was for fuel derived from waste. I was sorry to see that wave power was not one of the six bands and is being introduced among the others. I ask my noble friend on the Front Bench whether all the 10 projects concerned with fuel derived from waste which are contracted with regional electricity companies under the NFFO have waste available under contract. Are all 10 projects able to meet the financial requirements of investors at the slight price 422 of 6.55p per kilowatt hour until 1998? It is a short time in which to complete the construction of the plants and to have a financial return.
We have all come to the same conclusion as the noble Lord, Lord Ezra, that the gap should be closed as a matter of urgency and we wonder whether the market and fiscal incentives as proclaimed will be enough. We have the environmental imperative to save energy—I believe that that lovely phrase came from the Friends of the Earth—but I am going to suggest that we also need a psychological imperative. I hope that I can do something to counter the suggestion of my noble friend Lord Mersey that we must pay more to save more or to use less. I take his point that we regard energy almost as if it were free. However, I submit that we do that because we do not know what energy costs. I am talking about householders, small businesses and also larger businesses even when they have an energy manager.
Nearly two and a half years ago I had an idea when I was visiting the manufacturers of energy efficient bulbs. From that moment onwards I have nursed that idea which I believe would have a profound effect on energy conservation attitudes in this country. My idea comes not under technical or financial measures of the SAVE programme but under the measures which affect human behaviour. I looked, in vain as it happened, at the evidence given not only to this inquiry but to the previous inquiries of our committee into the efficient use of energy and so on. I found not one suggestion which encompassed my idea.
The first person I discussed my idea with was the late and highly respected Lord Lloyd of Kilgerran. He advised me to look into the matter in terms of patenting the idea, and that I did. I hoped to be able to develop the product so that there would be one in every home, but after making various inquiries I found a brochure with just such a product in it. It is, I am glad to say, a brochure of an English company. The technologies involved have been part of a framework programme of the EC and therefore there is nothing much I can patent. However, I should like to share the idea with the House and with my noble friend on the Front Bench. If people knew on a day-to-day basis or on a week-to-week basis what the energy used in their homes was costing them, their efforts in energy conservation and their take-up of government schemes such as the one announced last week—Helping the Earth begins at Home—would be far greater. What I suggest is something very like a taxi meter. It would show on a small appliance that could easily be installed in kitchens the daily cost of the energy being consumed in that house. Such an appliance could also be installed in small and larger businesses. It would mean that the housewife, the managing director of a small company or the manager of a shop could all become energy managers. They would have something to manage. The meters under our stairs are all very well if one can find them and see what they read. However, I defy most people to convert such readings on a daily, weekly or monthly basis into pounds and pence. I believe that the meter I am suggesting would have a profound effect on the conservation attitude of all who have them.
423 On a slightly different point, I know that the sub-committee did not handle transport, but the other day I was lent a car by my garage. It was an energy efficient car which I am afraid was not British. It had a computer attached to it which, every time one was in the wrong gear or accelerated or braked too fast, caused a series of red lights to come on. Thank goodness it did not bleep, but I am sure it could have done. I found it remarkable how in a short time I was driving to avoid the red lights coming on. In doing so I was far more relaxed and reached my destination just as quickly; but in doing so I know that I was saving money. Perhaps my noble friend could discuss this matter with his colleagues in the Department of Transport. I believe that the fitting of such a computer would be far less onerous than the fitting of speed limiters on heavy goods vehicles, coaches and buses, and it would be far more effective. It would be a psychological imperative.
I take the point of my noble friend Lord Cockfield about applying fiscal incentives. It is not my intention—I refer again to an appliance fitted in households—that such a monitor should be developed with government money. The units currently cost around £250. Development would be needed to bring the cost down to £20 or £25 so that they could be available in every house. The cost of computer technology and microchip technology is very much dependent on the numbers involved. I believe that there might be a vast export market for this equipment, especially in the Americas. Such appliances could be calibrated not only from kilowatt hours to pounds and pence but also to deutschmarks, French francs and US dollars. It would be a very simple matter to bring them down to a price level which we could all afford. Moreover, the regional electricity companies, which have an obligation to encourage energy conservation, could be required to make them a standard fitting, especially in new houses.
§ 4.10 p.m.
§ Lord Donoughue
My Lords, it gives me great pleasure to congratulate the committee on its report and the noble Lord, Lord Ezra, on introducing it so succinctly and authoritatively. As other noble Lords have said, it is an excellent report. I say that as one of the small minority of speakers who are not actually members of the committee. It is also, in the general thread of its argument and in many of its specific recommendations, comfortingly close to the Labour Party's policy on energy and the environment. It is reassuring on that, as it is on many other policy areas, to be part of the majority consensus.
In relation to the European Community, I should like to add that we often hear complaints in your Lordships' House about the bureaucratic interference from Brussels. But in this area of energy conservation we surly welcome the EC initiatives and co-ordination. In the broader international context, we must stress the need for even wider action. The world's atmosphere knows no national boundaries. Eastern Europe, which is on our doorstep, produces up to one quarter of the world's carbon dioxide emissions. Moreover, as China and India industrialise, the 424 pollution threat is terrifying. We look forward to receiving reassurance form the Minister that the United Kingdom Government will press other nations to join with the EC in co-ordinated action to limit carbon dioxide emissions. In particular, I believe that economic assistance to Eastern Europe should be linked to investment in clean combustion and energy saving.
We note that two areas crucial to energy conservation are deliberately not covered in the report. The first is transport. That is because of the time factor. It is one of the four main areas of CO2 emissions. The other is renewable energy, which offers great scope for limiting CO2 emissions, where the Government's research initiatives until recently have been sadly puny. However, I know that that will be the subject of the Commission's ALTENER programme report. We look forward to future opportunities to debate such issues. We hope that we will not have to wait too long to do so.
In the short time available I shall not attempt to deal with the whole field covered in the report. Broadly, it looks at ways either to encourage cleaner combustion or to reduce energy consumption. I prefer to select certain areas of the greatest urgency. In each area I have specific questions. The noble Lord is always among the most courteous and helpful of Ministers. His department has recently made some positive statements. We look forward to hearing his specific replies.
I should like to begin with two areas where I imagine that we all broadly agree. I refer to labelling and third-party finance. As regards the labelling of domestic appliances to provide clear information about the energy efficiency of the equipment, will the Minister confirm that the Government support mandatory labelling against the reluctance, as I understand it, expressed by some parts of British industry? On third-party financing—that is, contract energy management—which offers great encouragement and financial facility to install energy saving equipment, is the alleged relaxation of the Treasury's hostility to such, as it calls it, unconventional financing, real? Moreover, how many schemes above £250,000 have been approved by the Treasury in the past two years?
I turn now to the central problem of buildings. According to the report, buildings offer the "greatest scope for energy saving". Indeed, half the total energy consumed in the United Kingdom is in buildings and I believe that over a quarter of that amount is consumed in domestic housing. The problem varies between new and old buildings, but, as my noble friend Lord Varley said, it is more acute in the latter. But the report states that, even in new buildings, our standards of energy efficiency are much too low. British building regulations need to be tighter. In response to the report of the Energy Select Committee in another place, the Secretary of State appeared to concede that point. Can the Minister confirm that it is the Government's view that the existing UK building regulations need to be tightened? Further, what precise proposals does he have for tightening them? 425 As regards the existing building stock, the problem is much greater and the scope for energy saving is also much greater. Let us take, for example, housing, where 50 per cent. is pre-1960 construction. We have heard how the committee estimates that 5 million dwellings require "retrofitting". That is an ugly word, but I think that we know what it means. Indeed, many noble Lords might personally welcome some of it. In total, such a project is estimated to cost about £40 billion but the potential savings are huge. I believe that the committee's estimate of 10 per cent. is probably conservative and that the savings would be between £4 billion and £8 billion annually.
That is a tremendous challenge which offers tremendous rewards. We must ask what the Government are doing. What would their response be to the crucial paragraph 91? Of course what they actually did was to demolish the Labour Government's energy programme, which insulated a million houses in 1979 alone. Moreover, local authorities, which are responsible for 10 per cent. of energy consumption in this country, have suffered drastic reductions in expenditure on energy conservation. Indeed, the report suggests that the amount involved is down by about three quarters since 1983. Overall, at paragraph 35, the committee notes a,marked decline in government expenditure on retrofitting since the mid-1980s".
In that context I should like to ask the Minister whether he will treat paragraph 91 on retrofitting as a top government priority for response. Moreover, does he accept the committee's conclusion in paragraph 73 of the report that without a major programme of retrofitting there is no hope of achieving a significant energy saving? If that is so, can he tell us where the programme is?
I should like now to turn especially to the plight of the energy saving equipment sector. The decline in sales in that area is very worrying. The sector lost a quarter of its market during the late 1980s. That was not just because of the present recession; indeed, the numbers show that the sector has been in decline since 1982. I believe that the heart of the problem lies in the Government's excessive reliance on market forces. It means that when the general economy slows down, investment in energy conservation equipment declines along with other investment. When the real price of energy falls—that is, lower oil prices and cheaper coal imports—the market incentive to invest in energy conservation falls with it. Hence the committee concludes at paragraph 58 that,a market led strategy has meant a decline in investment".We note that the country with the best energy conservation record—namely, Japan—does not rely on market economics; it uses the intervention of MITI and, through a rigorous programme of regulations and fiscal incentives, it achieves one of the lowest energy ratios in the world.
The committee recommends stimulation of the energy equipment industry by fiscal and other means (paragraph 75), and I am sure feels that the extra expenditure on advertising promotion announced—and very welcome and well-directed—is not enough. Will the Minister explain why the Government are not 426 doing more in that area? I hardly need to add that we on this side of the House favour fiscal stimulation and financial incentives.
On that I should like to say a few words about the carbon tax proposals and the helpful update given by the noble Lord, Lord Cockfield. This side of the House of course welcomes the EC's demonstration of a radical concern for the environment and the need to reduce CO2 emissions. We are not opposed to energy taxes in principle. My view is that the relative prices of fossil fuels must, over time, rise; but we understand the caution expressed by the committee and the Government, as shown by the Minister's answers to questions last week, that the proposal needs close examination. We need to establish the price elasticity of energy, especially in the UK. We need to ensure that that proposal is not regressive, punishing the poor, and does not also merely lead to a switch from coal and oil to gas, which is in limited supply, and to nuclear fuel, which we know has other problems. That would, as my noble friend Lord Varley pointed out, threaten to finish off the British coal industry. A carbon tax alone, even in its updated form, is no substitute for other measures, such as greater regulation and financial incentives and the development of better cleanburn technology.
I should like to conclude on a more general theme: the crucial differences in political philosophy which still underlie the approaches to this topic involving the importance we attach to market forces, to government intervention to achieve energy conservation and to the role of the privatised power supply industries. The Government's position through the 1980s has been made clear. In 1982, Mr. Lawson, the Secretary of State for Energy, said:energy is a traded good. Our task is to set a framework which will ensure that the market operates in the energy sector with the minimum of distortion".The present Secretary of State appeared to restate that position to the Select Committee on Energy of another place.
In line with that, the Government have privatised the power supply utilities; but the committee, as the noble Viscount, Lord Hanworth, emphasised and as we on this side of the House agree, rejects that view. The energy market is imperfect and may require some further helpful distortions. If made more perfect, it may not help, as it says in paragraph 61 of the report:Market forces lead to minimising costs … This does not necessarily mean saving energy".As is stated:The overwhelming majority of witnesses took the view that market forces alone would not produce a sufficient level of … energy saving.
Moreover, the role of the privatised industries has been negative and obstructive towards energy conservation. Their priority is to maximise sales and not to conserve energy. They prefer switching to the gas fire rather than developing the clean burning of coal; and they are hostile to renewable energy sources and to CHP. Have the Government, along with other pre-election conversions, retreated from the Lawson doctrine of market forces? Will the Government press the Commission to allow zero rating of VAT on energy saving equipment? Will the Government consider increased depreciation allowances for such 427 Equipment—all recommended in the report—and will they regulate the power suppliers to ensure that conservation is a top priority and that they invest more in cleanburn technology?
The committee, like the Commission, fears that the targets set by the Commission and the Government for CO2 emissions will not be met under present policies. Do the Government share or reject those concerns? The report argues that success, "demands a coherent energy strategy". I am sure that the Minister will put that strategy before us today. Will he also say something about the exciting new discovery on fusion about which we read over the weekend? We congratulate British scientists on that achievement.
The report and some recent encouraging government statements show that we are moving towards agreement on what should be done. The report suggests that we have a broad consensus on words. We must now have more action or we put at risk the future of our children and the whole planet. The report puts the environmental imperative firmly on the agenda, and we welcome that.
§ 4.26 p.m.
§ Lord Cavendish of Furness
My Lords, I welcome the opportunity to respond to this interesting debate on the report of the European Communities Committee on Energy and the Environment. The Government have welcomed the report as a valuable and timely contribution to the continuing and developing debate on energy efficiency, particularly in view of the acknowledged role of energy efficiency in combating the threat of global warming. Your Lordships will wish me to thank the noble Lord, Lord Ezra, chairman of Sub-Committee B, and the members of that committee. I take the opportunity to thank the noble Lord for acknowledging some of the Government's work on this issue. I welcome the noble Lord, Lord Donoughue, to the Front Bench. I wish him a happy and long occupancy of that position. I thank all the noble Lords who have participated in the debate, perhaps especially the noble Lord, Lord Varley, who was closely involved with one of the earliest energy efficiency campaigns, under the logo Save It. I understand that the head of information in the Department of Energy at that time was one Bernard Ingham, whose name may be familiar to your Lordships from an occupation other than the promotion of energy efficiency!
Although the United Kingdom produces only a small proportion of the total of the world's CO2 emissions, it is important that we do not sit on our hands and do nothing. As we made clear in the White Paper on the environment last year, improvements in energy efficiency offer the cheapest and quickest way of combating the threat of global warming. That is why the Government take the report seriously, take energy efficiency seriously, and will continue to promote it energetically.
The Government have of course taken the promotion of energy efficiency seriously for a number of years, offering encouragement to consumers to invest in energy efficiency measures for the economic and environmental benefits that they offer. We have a 428 good record, with EEO programmes alone generating recurrent annual savings now worth £500 million per year; but far from being complacent, we continue to develop our programmes to encourage cost-effective energy efficiency improvements. We do that through the programmes operated by the EEO and other government departments in the United Kingdom; and in the context of EC measures, under the SAVE programme, which has been mentioned today.
It is rather hard to keep pace with the recent developments in energy efficiency initiatives, so fast have they been coming forward: so fast, in fact, that it might be helpful if I give a summary of current programmes and recent initiatives before responding to the other points raised in the debate. In doing this, I recognise that most of it has been covered, notably by the noble Lord, Lord Ezra.
The EEO of course continues with its main programmes which concentrate on tackling the barriers that prevent cost-effective energy efficiency measures from being adopted. I am talking of the low priority given to energy efficiency and customers' lack of expertise or information. This has come up at various stages of the debate. The home energy efficiency scheme has now been in operation for almost a year, offering grants with the primary purpose of increasing the take-up of basic energy efficiency measures in low income households. The best practice programme continues to provide independent and authoritative information on energy efficiency; the regional energy efficiency officers lead the drive to publicise our programmes directed at particular industrial sectors and visit main energy users to assist them in developing their energy management programmes.
Over the past year we have also taken forward a number of other measures which clearly show our determination to continue our campaign. The ministerial group on energy efficiency, which has been mentioned, works to raise the profile of energy efficiency and has published its first annual report which details and reviews our energy efficiency initiatives right across government.
The group also keeps under consideration the scope for further initiatives to stimulate energy efficiency improvements throughout the economy. I think that the importance that members of the group attach to their work is clearly demonstrated in their annual report. I was grateful to my noble friend Lord Reay who was in his place for part of the debate, and who was a member of that committee.
The evidence of the group's work is clear from the further initiatives we have recently announced. We have launched a new energy management campaign, entitled Making a Corporate Commitment, which is designed to motivate senior management in UK industrial and commercial companies. The EEO plans to persuade boardrooms that energy efficiency is one of the more important management priorities on their agenda, given the link between energy use and global warming, and the economic benefits that energy efficiency improvements can also provide at minimal risk.
429 In the domestic sector, the EEO and the Department of the Environment last week launched the campaign Helping the Earth begins at Home. The three-year campaign, which will cost £10 million, is aimed at improving householders' understanding of the contribution that domestic energy use makes towards global warming and at increasing the take-up of energy efficiency measures and behaviour in the home.
The campaign will encourage consumers to make use of another initiative: the energy efficiency advice services that have been put in place this year by the regional electricity companies, British Gas and British Coal. I hope that the noble Lord, Lord Donoughue, will note that. These can help people to use energy wisely and advise on energy efficient appliances.
On the subject of appliances, I am also pleased that tomorrow will see the launch of an appliance labelling scheme by the regional electricity companies. This is a voluntary scheme, which we have helped develop and very much welcome, which will fill the void before a mandatory EC scheme becomes operational. The noble Lord, Lord Donoughue, asked whether we would support mandatory appliance labelling. The Commission's proposal for a directive on appliance labelling has been submitted to the council. We support the proposal; but implementation will not commence until late next year at the earliest—hence our interim approach to it.
The European Community scheme is being brought forward under the SAVE programme, the objectives of which are supported by the Government and the committee. The Government were pleased that last month's Energy Council adopted the SAVE decision. We will consider the specific measures under SAVE as they are proposed by the Commission.
One measure has now been agreed in principle: the introduction of standards for gas and liquid central heating boilers. Like the committee, the Government have always supported the aims of this directive but we have been concerned to ensure that the standards set took full account of the particular circumstances of UK domestic installations and thus encouraged cost-effective energy efficiency improvements, rather than discouraging them. We are glad that last month's Energy Council was able to reach agreement in principle on an amended text which reflects the circumstances of the UK domestic heating market.
It is therefore evident that we have continued to press forward with targeted and effective programmes, and to introduce new initiatives where appropriate.
All of these initiatives have been launched since the Government provided their response to the committee's report. Since then, the Autumn Statement has also confirmed our increasing financial commitment to energy efficiency. The EEO budget for 1992–93 will be £59 million—a 40 per cent. increase in resources for EEO programmes from the £42 million available this year. Further increases are planned—to £70 million in 1993–94, and to £75 million in 1994–95. I hardly think it fair to say, as did the noble Viscount, Lord Hanworth, that we were doing very little. The noble 430 Lord, Lord Donoughue, asked why we do not do more; and he will therefore be pleased that we are doing more.
These increases will allow our existing well-targeted programmes to develop and new ones to be introduced. The money provides for a 50 per cent. increase in resources next year for the home energy efficiency scheme. Additional resources are also being made available for the best practice programme and our regional and publicity activities.
In addition, the EEO budget includes provision for expenditure on the first year of the new energy management assistance scheme, following up a commitment to the scheme made in the environment White Paper last year.
The scheme, offering financial support for project management assistance with the implementation of energy measures, will be targeted on enterprises with fewer than 500 employees. It is to come into operation on 1st April 1992 and will subsidise the use of consultants for energy auditing, investment feasibility studies and the project management of investments devoted to improving energy efficiency.
A number of points were raised during the debate. I have not been able to study the matter of fusion very deeply which was raised by the noble Lord, Lord Donoughue. We must accept that it is extremely exciting and I join him in congratulating the scientists. No doubt we will hear more of it before long.
The noble Lord, Lord Varley, spoke of the state of domestic architecture. I tend to agree that it is important that we should encourage more architects to adopt energy efficiency design measures. We have developed a new strategy under the best practice programme which involves working with the professional institutions to encourage building professionals such as architects to take full account of energy efficiency in new buildings.
We are also currently working with the Royal Institute of British Architects on production of client guides on energy efficiency designs. In addition we are working with the Royal Institution of Chartered Surveyors on the production of best practice literature.
A number of other initiatives to encourage energy efficiency designs include recent seminars on achieving low energy costs in offices, aimed at architects, designers and developers; and a series of energy efficiency workshops which will be held in each of the RIBA's 14 regions. Workshops will cover the Building Research Establishment's domestic energy model.
Noble Lords on all sides of the House have mentioned carbon tax, its merits and disadvantages, as well as the anxieties that the concept produces. The Government accepted the comment in the White Paper on the environment that in the long term the relative price of energy will have to rise to provide a stimulus to energy efficiency and hence reduce CO, emissions. I believe that that is a straight answer to the question put by my noble friend Lord Mersey.
The Government will study the Commission's proposals carefully and contribute constructively to the debate. However, as all noble Lords have recognised, the proposals need thorough examination.
431 Questions which must be addressed will include: first, will the Commission's ideas increase prospects for international agreement on effective arrangements for limiting CO2 emission? It must be remembered that the Community cannot solve climate change questions on its own. Secondly, if the Community sets the lead on energy taxes, will other industrialised countries follow? I have in mind particularly the United States and Japan. What will be the consequences of unilateral action for the competitive position of member states of the European Community?
A number of noble Lords, notably the noble Lords, Lord Ezra and Lord Varley, and my noble friends Lord Mersey and Lord Cockfield, spoke about VAT and fiscal measures generally. The Government have stated, and it continues to be our view, that VAT will not be imposed on the domestic use of fuel and power during the lifetime of this Parliament. So far as concerns the zero rating of energy efficient products, the European Commission's sixth directive does not allow extensions of zero rating. However, my right honourable friend the Chancellor of the Exchequer is aware of the anxieties which have been expressed.
My noble friend Lord Cockfield took me rather unawares by referring to a paper which I have not seen. The document has been delayed in translation, and whether my noble friend has seen it first because he is bilingual I am unable to say. Copies are at present being distributed from Brussels.
The noble Lords, Lord Donoughue and Lord Ezra, spoke of contract energy management, and they asked about the number of schemes approved under the £250,000 limit. There are no schemes in the government estate above the £250,000 limit. However, there are a small number in the NHS and among local authorities. The EEO is working with the contract energy management industry to encourage adoption in the public sector. It published an applications manual last month under the best practices programme to tackle the problem of lack of information. That is a major barrier to contract energy management in the public sector. The Treasury will naturally be looking for good value for money in proposals, whatever their size.
The noble Lord, Lord Donoughue, said that building regulations should be tightened. It was only last year that the latest improvements to the thermal insulation requirements of the building regulations came into effect, introducing a 20 per cent. improvement over the previous requirements. However, the Government accept that the timetable for the further review of the regulations should reflect increased anxiety about global warming. We are therefore monitoring how the new regulations operate in practice, carrying out research which will help to inform the next revisions and reviewing options for further changes in the requirements. That should lead to new regulations becoming operational in 1993–94, a significant acceleration in the timetable compared with the past.
A number of noble Lords, and in particular the noble Lord, Lord Donoughue, raised the question of retrofitting. A major programme to retrofit all homes in the United Kingdom would take many years and 432 might cost up to £45 billion—the equivalent of one year's energy bill. That rough illustration suggests that overall the cost of retrofitted energy efficiency measures are recovered in only 10 years. However, the EEO estimates that there is a potential to save 15 per cent. to 20 per cent. of total building energy consumption through the adoption of highly cost-effective energy efficiency measures which pay for themselves within three years. The EEO concentrates its efforts on encouraging the take up of cost-effective measures.
The noble Lord, Lord Donoughue, asked about market economics. Current Government initiatives already include a mix of financial measures, measures to encourage technological improvements and measures aimed at tackling consumer behaviour. The Government believe that the market and market-based measures have a central role to play in realising the potential energy efficiency improvements which are available. However, we do not rule out other measures, including regulation, subsidy or taxation, where those offer the most cost-effective options for overcoming barriers to take up. There is no dogma on our part in this matter.
I understood the noble Lord, Lord Ezra, and the noble Lord, Lord Donoughue, to suggest that privatisation has hindered energy efficiency. If customers are properly informed about energy efficiency, and prices properly reflect cost, consumers can make the right decisions about their energy usage. Both utilities are obliged by regulatory regime to set prices to reflect costs. In addition, the RECs have a statutory obligation to provide advice on energy efficiency to customers, and their licences oblige them to provide a code of practice on energy efficiency. Those codes have now all been approved by OFFER. British Gas has produced its own voluntary code of practice; and under the Citizen's Charter Bill currently being drafted it is proposed to give OFGAS similar powers to determine standards in relation to the promotion of energy efficiency as exist in the Electricity Act.
As regards the Government's estate, one of the key objectives of the ministerial group which I mentioned is to lead by example. For that reason it has set a very demanding target for the Government's estate of 15 per cent. savings in energy consumption over the five years 1990–91 to 1995–96. Each Minister has responsibility for ensuring that his department carries forward work to meet the target and for monitoring the department's progress. I am confident that the new arrangements put in place by departments as a result of the campaign will enable targets to be met.
All departments now have energy managers and are putting in place energy strategies and work programmes. The ministerial group has agreed to the setting up of an official working party to monitor progress and to advise on the departments' programmes. Last year departments spent over £20 million on energy efficiency measures.
My noble friend Lord Mersey asked about the Danish programmes for CHP. Comparisons are difficult because of the different climate and energy infrastructure. Cost-effectiveness will dictate different 433 solutions in different circumstances. My noble friend asked about the South East London CHP scheme, which is a project initiated by Southwark, Lewisham and Greenwich councils with a private contractor to produce 30 megawatts of electricity a year from 400,000 tonnes of solid waste. That is an example of how the non-fossil fuel obligation is working to promote environmentally desirable measures. I am told that the scheme is proceeding.
The noble Viscount, Lord Hanworth, asked about home energy labelling. He said that we should not wait for EC proposals. I have already dealt with that point. The noble Lord, Lord Renwick, advocated a device for showing the daily cost of energy and altering the psychological approach of consumers. We welcome any proposals that will strike a chord with consumers. Enhanced metering in the home is the subject of active consideration by the utilities and regulators, OFFER and OFGAS. I shall pass on my noble friend's comments on transport to my colleagues.
Energy efficiency is good for business for everyone in the UK, as well as bringing with it the environmental benefits of which we are increasingly aware. As the EEO's current logo says:It pays to be energy friendly".I am very pleased that so many noble Lords have participated in or attended the debate recognising the importance of the subject. I have been speaking for 21 minutes; if there are any points which I have not covered I shall write to noble Lords, but I hope that I have been able to demonstrate to the House the level of the Government's commitment to the subject.
§ 4.47 p.m.
§ Lord Ezra
My Lords, I should like to thank all noble Lords who have participated in this very important and informative debate. I am particularly pleased that there has been general agreement that the Community's SAVE programme is desirable and that we should give it as much support as possible. I am also pleased that there has also been approval of the committee's report thereon.
The committee has received some very good guidance from those who have spoken today. The noble Lord, Lord Cockfield, whose knowledge of Community affairs is unrivalled, has pointed out the vital importance of any prospective energy tax or carbon tax which might be proposed. Many noble Lords referred to that and it is a subject to which the committee should quickly turn its attention. Like the noble Lord, I found it difficult to get hold of the document that sets out the Commission's proposals. I received only a truncated version of the document at an energy conference. The normal parliamentary processes have so far been unable to divulge that document. It would be helpful if all those concerned could get hold of that document and we could then start to study it quickly.
I was delighted at the contribution of the noble Lord, Lord Varley. I almost referred to him as my noble friend because we are old friends. We have been connected in energy for many years. The noble Lord was Secretary of State for Energy when I was at the 434 Coal Board. I well remember him setting up the Advisory Council on Energy Conservation with Sir William Hawthorne. I was a member of that body and we recommended many of the points that are now being considered for energy efficiency. The noble Lord is right to say that the question of the environment did not arise. We were concerned with energy saving, mainly in the light of what had happened to the price of oil, but the measures proposed were similar to those that we are now contemplating.
The noble Viscount, Lord Mersey, who spoke to us about CHP, is an expert on the subject. He has been to Denmark and has seen it in operation and he was most helpful to our committee in what he told us about it. My noble friend Lord Hanworth, who spoke to us particularly about the examples in Holland and Denmark and about questions of energy labelling was a great asset to our committee. I am sorry to say that he is now leaving us. I am most grateful to him for his contribution over the years. The noble Lord, Lord Renwick, who is also a great contributor to our debates, came forward with the interesting proposition of an energy-saving meter. I am delighted to hear that the Government are seriously considering that proposal.
Like the noble Lord, Lord Cavendish, I should like to welcome the noble Lord, Lord Donoughue, in joining the energy club. Bearing in mind that he is an expert on financial services, I am sure that anything that goes on in the energy field will be child's play to him; but we look forward to his contributions in his new capacity.
I am most grateful to the noble Lord, Lord Cavendish, for the support that he gave our report. There are differences of emphasis between the committee's report and a number of noble Lords who spoke; but, as a result of the debate, the Commission's proposals and the committee's report, there is a developing consensus on the way in which we should deal with the question of energy efficiency, which now has a much larger environmental dimension. Our well-informed debate today is a further step in the right direction and I thank all noble Lords who have participated.
§ On Question, Motion agreed to.