INTRODUCTION

  1.  We note that the Environment, Food and Rural Affairs Committee are disappointed with the Government's response of 15th November to its report Climate Change: the "citizen's agenda", published on 13 September 2007. First and foremost let us emphasise that this Government takes the Committee's report seriously and has, and will continue, to give its recommendations due consideration as part of the policy making process. The report touched on a number of key areas where there is a great deal of existing action driving this agenda forward. The Government response highlighted this activity and, where we agreed, committed to act further. This document responds to the points raised by the Committee in their additional report of 18 December 2007. The headings below reflect those in the report.

TIMING OF THE GOVERNMENT RESPONSE

  2.  We understand the Committee's reaction to the timing of our response but we were committed to delivering the Committee a response as soon as possible. Final decisions on the Green Homes initiative were still being taken at the time the response was completed, although we did foreshadow the Prime Minister's announcement in the introductory section, which noted the need for consumers to be presented with a package bringing together the different sources of help that are available in a more accessible form. The Green Homes initiative, to be led by the Energy Saving Trust, is an important step forward, offering advice not only on energy efficiency but on microgeneration, water efficiency, recycling and greener travel. It will also offer consumers easy access to the full range of discounted and free offers available, not least some £2.8 billion in energy supplier activity obligated under the forthcoming Carbon Emissions Reduction Target.

OTHER COMMENTS ON THE GOVERNMENT RESPONSE

Assistance to local authorities

  3.  The Committee set out several recommendations on the role of Local Authorities in providing community leadership and practical help on energy efficiency and renewable generation. We agree that Local Authorities do have an important role to play and we are taking steps to facilitate this.

  4.  Through the Community Energy Efficiency Fund a significant number of Local Authorities have received funding for area-based projects aimed at identifying households and providing the right coordinated set of advice and measures to them. We will be evaluating, this summer, the impact of the Fund (after a full year of operation), and considering next steps.

  5.  We have provided financial encouragement to local and community renewable generation by committing £10 million to the Carbon Trust's Partnerships for Renewables. This programme establishes partnerships with public sector bodies to develop, construct and operate onsite renewable energy projects, with a target of 500 megawatts of capacity on public sector land. Although in its early stages, the programme is currently working with over 100 public sector bodies, including local authorities, with a significant number of lead projects under exclusivity, as it looks to leverage, in total, around £500 million of private sector investment. This is, of course, in addition to the Defra-funded support already provided to local authorities via the Carbon Trust's Local Authority Carbon Management programme, which has worked with 141 authorities since its launch in 2003.

  6.  In November, we announced additional support for a joint Carbon Trust/ Energy Saving Trust initiative with the English core cities outside London to look at ways that they might best reduce their carbon footprint. This will provide a full state of play audit of current core city performance and existing city-wide opportunities across all core cities and produce city-wide carbon reduction plans for three selected cities (Manchester, Leeds and Bristol). It will also develop a city-wide CO₂ baseline tool and a Low Carbon Cities toolkit to capture the learning of the city review which will be disseminated to all cities and local authorities.

  7.  The Committee ask how the Government expects the Planning Bill to assist local authorities in bringing forward decentralised generation schemes. In short, through the Planning Reform Bill we are placing a duty on councils in preparing their local plans to take action on climate change. Local planning authorities will be required to include in their development plan documents (taken as a whole) policies designed to secure that the development and use of land in their area contributes to mitigating and adapting to climate change. Planning legislation already expects the preparation of local plans to take into account national planning policies. These include the policies set out in the Planning Policy Statement on climate change published in December. The Planning Policy Statement sets out a huge role for local councils, through their strategic local leadership, to shape and help deliver opportunities for local low carbon and local renewable energy. The combined effect of the duty and the Planning Policy Statement will be a statutory obligation on councils to use their local plans positively to help deliver local green energy in support of the Government's ambitions for zero-carbon development. Practice guidance will be issued to support the Planning Policy Statement.

  8.  Two climate change mitigation indicators are included in the new local government performance framework. We are now working closely with the Government Offices to ensure that climate change mitigation targets are agreed for inclusion in as many final Local Area Agreements as possible. Initial feedback from the first stock take of the proposed indicators, as identified by Government Offices, is very positive. Action to tackle CO₂ emissions from communities was the most commonly identified indicator from all 150 upper tier areas.

Supplier obligations and energy services

  9.  The Committee question Government's support of energy services, saying that to wait for the post-2011 energy supplier obligation represented slow progress. However, the Government has been promoting energy services: through an "uplift" under the Energy Efficiency Commitment since 2002, via activity funded through the Energy Saving Trust and more recently through Ofgem's removal of the 28-day rule. As the Committee rightly stresses, some energy companies are already expanding their consumer offerings beyond simple energy sales into a broader range of energy services—it is thus incorrect to assume that energy services in the household sector will only start under the post-2011 supplier obligation. The transition from the Energy Efficiency Commitment to the Carbon Emissions Reduction Target in April 2008 will further strengthen incentives for suppliers to move to energy services by including rewards for innovation and all forms of microgeneration. We are looking to reinforce this trend further through the post 2011 obligation whilst also capitalising on the successes of the Energy Efficiency Commitment in delivering the most cost effective measures first.

  10.  The Committee suggest Government reconsider their recommendation to list householders' contributions to the Energy Efficiency Commitment separately as part of the Government's move towards better billing. We agree with the Committee that it is important consumers are aware of the support available to improve the energy performance of their homes, including through energy supplier activity obligated under the Energy Efficiency Commitment (and Carbon Emissions Reduction Target). We understand that suppliers already use the billing process to help advertise the offers and subsidies available. We will therefore continue to explore with suppliers how best to strengthen consumers' awareness of Carbon Emissions Reduction Target offers, including the fact that they are undertaken in fulfilment of a Government obligation. However, how suppliers cover the costs of their activity is a commercial matter and is not disclosed by suppliers to Government or the scheme regulator, Ofgem. The Government cannot compel suppliers to display such information on bills and in terms of quantitative information it is far from clear whether suppliers could include anything other than a notional cost per customer on bills. We will, though, explore with suppliers the merits and feasibility of presenting additional information.

  11.  On a closely related note, we welcome Ofgem's recent consultation on energy ratings for low carbon and renewable energy supplies. Although not covering energy efficiency activity per se, it will provide valuable insight into ways of providing information to customers about suppliers' environmental activities.

Metering

  12.  The Government fully shares the Committee's view that a convenient means of displaying information to the customer is a necessary complement to the provision of a smart meter. The Government also understands the wish for clarity on the part of industry and customers. It will shortly give its response to its consultation on metering and billing. The Government is aware of BEAMA's proposal, which is one of many approaches to the provision of smart metering.

Micro-generation and Renewable heat

  13.  The Committee remain unconvinced that the Government has a robust policy to support micro-generation, and as part of this, question the role of the Renewables Obligation, the Low Carbon Buildings Programme and the Carbon Emissions Reduction Target as support mechanisms. The Committee also recommend that an investigation of feed-in tariffs be urgently undertaken and seek clarity on how the planning regime will be amended. Taking each in turn:

  14.  The Government remains committed to the Renewables Obligation and in early January announced proposals that under a reformed Renewables Obligation, microgeneration which produces renewable electricity, will receive two Renewable Obligation Certificates per MWh, rather than one. This is being taken forward by BERR who lead on Government Energy Policy, as part of the Energy Bill with the intention of introducing them from 1 April 2009. In addition we have given agents the ability to act on behalf of microgenerators, and 70% of all microgenerators make use of an agent. We have also given microgenerators the ability to make annual Renewable Obligation Certificate claims. The number of microgenerators accredited under the Renewables Obligation has risen from 303 to 1,508 with 320 applications still pending. We recognise though, that the Renewables Obligation is not the only means by which we might support renewable generation, and we will be reviewing support mechanisms for microgeneration in 2008 as part of two processes.

  15.  We will press on with strengthening the Obligation as proposed in the Energy Bill. These changes alone will allow us to triple the contribution of renewable electricity by 2015.

  16.  We will also publish in the summer a consultation document on the options for best delivering our target of 15% of all energy coming from renewable sources by 2020 (as set in the EU Commission's draft renewable energy directive). We will consider the wide range of possible initiatives such as financial or regulatory instruments, voluntary guidance and providing better information to business and household consumers. This will include consideration of the outcomes of the OCC Call for Evidence on heat, which was published at the end of January and will, of course, include reviewing the energy policies used elsewhere in Europe, such as the feed-in tariff in Germany, so we can benefit from others' experiences. However, whatever the merits of feed in tariffs in other countries, we need to consider what will work best in the UK. We also have to recognise the importance to investors and developers of stability in the support framework.

  17.  The Low Carbon Buildings Programme is a capital grant scheme run by BERR, who lead on Government energy policy. Phase one of the Low Carbon Buildings Programme was redesigned and relaunched to ensure that a larger number of householders would benefit from the scheme through receiving grant funding to install microgeneration technologies in their homes. As part of this redesign, it became a requirement that applicants have planning permission before applying to the scheme, as well as imposing a cap of £2,500 on each individual grant. Since re-launch we have seen a more diverse technology mix with increased percentages of biomass and ground source heat pump installations for example. BERR continue to work in partnership with the Energy Saving Trust to promote the Low Carbon Buildings Programme, to raise awareness of the funds that remain available to successful applicants and to target those most likely to install microgeneration technologies.

  18.  With regards to the Carbon Emissions Reduction Target, we acknowledge that the inclusion of microgeneration technologies in CERT is just one element of the wider microgeneration strategy. Illustrative mix levels of uptake estimate an additional 80,000 microgeneration installations could be delivered through CERT, and Defra will be working with electricity suppliers to ensure that they take advantage of the microgeneration opportunities that CERT provides. The aim of the Low Carbon Buildings Programme is to demonstrate the potential of microgeneration technologies, and along with CERT to stimulate the market by driving up demand which in turn will lead to price reductions, making it more accessible across the board.

  19.  Finally, Government published its response to the consultation on proposals for changes to the planning system in relation to the installation of microgeneration equipment for domestic properties. The paper explained the changes proposed for extending and clarifying the scope of permitted development. In the light of responses to the consultation, the Government now intends to provide permitted development rights for the following types of microgeneration: solar panels, wind turbines, heat pumps, biomass and combined heat and power, subject to specific limits and conditions that will ensure that any adverse impact on others is not significant. The Government will be bringing forward secondary legislation to implement these changes for householder microgeneration in spring 2008. Similar proposals for non-domestic properties are also being considered.

  20.  The Government remains committed to microgeneration, and will continue to work with the industry to ensure the success of the Low Carbon Buildings Programme, as well as working with household energy suppliers to encourage them to use CERT to promote uptake of microgeneration technologies.

"Green" taxes

  21.  The Government has indeed put in place a principled framework for fiscal policy. This is set out in Tax and the Environment, which builds on the commitment made by the Government in its 1997 Statement of Intent to explore the scope for using the tax system to deliver environmental objectives, whilst making clear that tax is one instrument that should be used in combination with others like regulation and voluntary action. Environmental taxes can support all of the three elements of the (Stern) policy framework for an efficient and cost effective response to climate change, but should only be used where they are the most effective way to take action. Over time, the Government aims to reform the tax system to increase incentives to reduce environmental damage, which would shift the burden of tax from `goods' (like employment) to `bads' (like pollution), whilst making sure that environmental taxation meets the tests of good taxation.

  22.  Using environmental taxes to shift the burden of tax from `goods' to `bads' can be an effective way to support overall environmental policy whilst still ensuring that the Government is able to fund essential public services and maintain sound public finances. This approach has been used when new environmental taxes have been introduced. For example, the landfill tax, climate change levy and aggregates levy were all introduced alongside offsetting reductions in the rate of employers' national insurance contributions (NICs).

  23.  However, the earmarking of revenue from environmental taxation does not guarantee cost-effective environmental action whilst also both running the risk of undermining efforts to maintain sound public finances and not guaranteeing value for money for the taxpayer. The Government does not believe that a strategy of hypothecating taxes to particular spending programmes is the right approach. This would reduce flexibility and efficiency in the allocation of public spending, with spending on that programme determined by the revenues received rather than by a balanced assessment of relative priorities across public services. The Treasury makes spending decisions in the round as part of the spending review process, ensuring that within a fixed envelope consistent with the fiscal rules, resources are allocated efficiently to deliver key priorities and reflect changing circumstances.

  24.  This overall approach to environmental taxation—and, more widely, the innovative range of measures introduced since 1997 to protect the environment—has been effective. It has helped the UK to make significant progress against its environmental goals whilst also supporting wider Government priorities, such as delivering sustainable and strong growth, helping those in fuel poverty and maintaining sound public finances.

Department for Environment, Food and Rural Affairs

8 February 2008