Energy Inquiry
Agenda item 3 is evidence in the committee's inquiry to inform its response to the European Commission's green paper on a European strategy for sustainable, competitive and secure energy.
The committee considered the terms of reference for the inquiry at its previous meeting and the agreed terms have been provided in the papers for today's meeting. Members will recall that we agreed that we would focus our response on the section of the green paper on energy efficiency.
I am delighted that we have some experts on energy efficiency before us. Andrew Warren is director of the Association for the Conservation of Energy; Chas Booth is parliamentary officer for Friends of the Earth Scotland; and John Stocks is the Carbon Trust's manager for Scotland. Andrew and Chas provided some advance information to the committee, but I ask each of you to make a short opening statement. I understand that you all have your specialisms, so I ask you to indicate which of you would like to respond when questions are put by members of the committee.
Andrew Warren (Association for the Conservation of Energy):
Good afternoon. It is nice to be here today. Previously I have visited the committee room only as a tourist so it is nice to see it in official use.
I am the director of the Association for the Conservation of Energy, which is based in London. The association is both a research and an advocacy organisation. I also act as the senior adviser not just to ACE in the United Kingdom but to European ACE. I think that members can work out from that what our interests are as far as Brussels is concerned.
I should perhaps declare an interest in the green paper. I was quite heavily involved in its development because I serve on an advisory forum to the transport and energy directorates in Brussels and we worked closely with both of the relevant commissioners. The Commissioner for Energy, Andris Piebalgs, asked for our views in the run-up to the publication of the green paper and it incorporates many of the views that we hold strongly, most of which are about energy efficiency. We welcome the fact that the European and External Relations Committee picked up on the strong message about the importance of energy efficiency both in the European context and in individual member states.
Chas Booth (Friends of the Earth Scotland):
As I am sure members know, Friends of the Earth Scotland is Scotland's leading environmental campaigning organisation. We have been active since 1978. We collaborate closely with the Association for the Conservation of Energy and have done so for many years. ACE jointly funds my post and much of my work is research and advocacy on energy efficiency in the Scottish policy context, with a particular focus on fuel poverty. I sit on the Scottish Executive's fuel poverty forum.
John Stocks (Carbon Trust):
The Carbon Trust was established by Government in 2001. Our mission is to accelerate the transition to a low-carbon economy. We do that through two key threads of activity: we help businesses and the public sector to reduce their carbon emissions; and we help to develop the low-carbon technologies of tomorrow. Our organisation was established as an independent company, so we have a range of financial and non-financial support mechanisms. That allows us to give advice and grants to business and it could even lead to equity loans. There are now 140 of us throughout the UK and our spend this year is expected to be about £100 million, which includes £5.5 million from the Scottish Executive.
There are eight of us working from an office in East Kilbride. Our principal roles are to manage the £2 million of direct, local delivery that goes into Scottish business every year, to promote the work on developing future activities that is done throughout the UK, and to ensure that the trust's central knowledge resource is leveraged into Scotland so that Scotland gets the benefit of that work.
Thank you. I open up the meeting for questions from committee members.
I will concentrate on efficiency. The European Commission is concerned about security of supply—I say to my Friends of the Earth colleague that I welcome the recent conversion of Patrick Moore, the founder of FOE, to a rational approach to secure supplies.
I have a question for Mr Warren. Your association has existed—and you have been its director—since 1981. Has progress been made on saving energy during that time? If so, will you quantify the units of electricity that have been saved?
Are you asking about the European context?
I am asking about the United Kingdom and Scottish contexts in particular.
I am sorry. I was under the impression that we were discussing the European green paper, so I did not bring the relevant figures. You are right to say that for the past 25 years or so, my association has sought in a UK context and latterly, in a European context, to get over the message that the cheapest, most publicly acceptable and swiftest means of addressing some of our energy issues is to reduce our waste.
On security, you will see from the green paper that one of the best means of addressing worries about imports is to minimise the amount that we need to import by minimising the amount that we consume.
One could produce any number of figures about the way in which the energy intensity of the UK economy has improved. By energy intensity, I mean the amount of energy that we need to use to produce a given unit of output. Since 1997—I do not know why that year should spring to mind—there has been something like a 30 to 40 per cent increase in our affluence as a community, but only a 3 per cent increase in the amount of energy used. That follows patterns throughout Europe. As members will see from the green paper, we are improving our energy intensity by about 1 per cent per annum by reducing the amount of energy that we use to improve our economy.
The green paper makes the point that we need to up our game. It posits that we need to improve our energy intensity by a further 1 per cent per annum. About six months before the green paper was produced, the European Commission published another green paper. It was called "Doing More with Less" and focused specifically on ideas to deliver energy efficiency. The green paper before us today is the strategic paper that considers broadly all types of energy, including various supply options. The previous green paper is a subset of that and an action plan will come directly from it later in the year.
There are several examples, including from the UK, that demonstrate that, per kilowatt hour, energy efficiency measures are much more cost effective than any form of new supply, including new electricity supply.
I tend to agree with that objective. However, here in Scotland we were encouraging and funding the insulation of lofts and cavity walls in 1980. How many owners have insulated their properties in Scotland, and—recognising your wider remit—the UK? New construction standards ensure that sufficient levels of energy efficiency are built into the construction process. Where do we stand with the construction industry?
Those are two different questions. One relates to existing homes and the other to new homes. You are right to say that the Labour Government of 1977 introduced a loft insulation programme, but not a cavity wall insulation programme. To the best of my knowledge, direct subsidies have never been available from Government for people to install cavity wall insulation.
I interrupt you to say that there was such a programme in Scotland.
A cavity wall insulation programme?
Yes.
I am delighted to gather that. How recent was that?
If I remember rightly, the programme was administered through local authorities.
It was offered by the Tory Government in 1980.
Thank you. I think that the question was asked in a UK context so I replied in a UK context. I was going on to say that the funded home insulation programme was continued after the 1979 election but faded out towards the end of the 1980s.
I think that I am right in saying this, although I stand to be corrected, but I am not aware of any programme being funded by national, regional or local government. At the moment there are programmes run by what is called the energy efficiency commitment, which is a requirement for energy companies that want to supply gas or electricity to individual households to negotiate with the Office of Gas and Electricity Markets to deliver a certain amount of savings over a three-year period. Those programmes have been delivered extremely cost-effectively to date.
I have a feeling that Chas Booth might know the numbers for Scotland and will provide them to you.
There are different methods of construction in Scotland and other parts of the United Kingdom. Chas Booth will probably be able to pick up on that, as well as on the recent relevant legislation that has been passed.
I will comment on two issues. Friends of the Earth Scotland and the Association for the Conservation of Energy have been extremely complimentary about the Scottish Executive's central heating programme and the warm deal, which focused on the fuel-poor and pensioners, as members will know. Since 2001, the Executive has invested in the region of £183 million. Until 2002, it was quite successful in reducing fuel poverty; figures fell from around 35 per cent to approximately 13 per cent. However, the most recent Scottish house condition survey, which takes us up to 2003, showed a 1.5 per cent increase in fuel poverty. Given the recent fuel price rises, I have a strong suspicion, which other observers share, that more recent figures will also have gone up. To us, that underlines the importance of renewed political commitment to the warm deal and the central heating programme, which in a sense are about retrofitting insulation.
For new buildings, members might be aware that the Scottish Building Standards Agency currently has a consultation out on the parts of the building regulations that concern energy. We are very glad that there has been an increase in the level of U-values, or the energy values of elements of buildings. However, we feel that there are several elements missing from the regulations. For example, there is no compulsory air tightness testing in the Scottish building regulations, which is included in the English regulations. Some research has been done in England that suggests that up to one third of buildings do not meet building regulations standards. To us, that is an absolute scandal, but the research that has been done is limited. We have asked the Scottish Building Standards Agency to do similar research in Scotland but so far it has refused. The committee might want to take a view on that.
We believe that there is an opportunity to insulate the fuel-poor from rising fuel prices through the use of micro-renewables, such as solar water heaters, small-scale wind turbines, ground source heat pumps and so on. A number of boroughs in England have successfully introduced a compulsory micro-renewable element in large buildings. Woking and Merton are two such boroughs. The current review of our building regulations specifically rules that out. We believe that that is a major missed opportunity and that the SBSA should review the position.
John Stocks, did you want to come in there? I thought that you were subtly indicating to me.
No, I am just getting a feel for the place.
Okay.
Bruce Crawford has already apologised to me as he must leave at 4 o'clock, so I will give him the opportunity to ask anything he wants to ask before he leaves.
Chas Booth has unpicked some of the questions that I was going to ask. Obviously the EU is doing what it is doing, but for me the question is about what we can change. Where can we make the biggest gains? Is it through grant finance or legislative change? Chas began to talk about some of the issues around regulations.
In this country, we are having a discussion about additional electricity production. If we can make significant gains in energy efficiency, the figures that we have to deal with might change and the required production level might not be as high. My concern is that peak winter demand in Scotland seems to be on a continuing upward curve—particularly electricity demand. If we are being more energy efficient, that is certainly not showing itself in the figures. How can we go that bit further? What are the big things that we could do to make a difference?
Andrew Warren will probably have quite a lot to say on the matter.
The Scottish Executive is already doing a lot that is good. We mentioned the central heating programme. The Executive also has a highly successful programme that gives zero-interest loans to small and medium-sized enterprises to install energy efficiency measures. The loan is paid back over up to five years, from the reduction in outgoings that has come about through the energy efficiency measures.
The programme is called loan action Scotland. The current budget is about £1.4 million, but the money is paid back to the Executive, so it is one of the cheapest ways of saving carbon. It also has the benefit of reducing costs to businesses. It is a great scheme, but in our view the Executive is not putting enough money into it and is not being ambitious enough. Last year's figures indicate that the Executive gave 32 loans for the whole of Scotland. We believe that the programme is fantastic and must be expanded. That is one example of good practice in Scotland that could be taken a lot further.
I turn to John Stocks, as the Carbon Trust's submission points out that its review found that there were barriers to the uptake of greater energy efficiency measures in businesses. Will you also address that issue in your response?
I will go back to another point that was made earlier. For one or two reasons, I have had a look at some of the outcomes from the Scottish energy study. It shows that if one nets out one single plant closure, Ravenscraig—one has to guess a little bit how much energy went into Ravenscraig—it looks as though Scotland's energy demand rose by about 10 per cent between 1990 and 2002. When one looks behind those figures, particularly in the domestic and service areas, the rate of the rise in electricity demand is perhaps twice the rate of the rise in gas demand. Information technology, mobile phone chargers that are plugged in all the time and so on are driving increased demand for electricity more so than for gas, which would be used for space heating in domestic and service areas.
I have also tried to figure out where all Scotland's energy goes and to establish how much is used for transport, space heating, industrial process heating and electricity. These are rough figures: space heating represents about 40 per cent of the energy take, about half of which goes on heating domestic homes; transport accounts for 28 per cent; industrial processing heating accounts for 11 per cent; and electricity accounts for about 21 per cent.
Electricity is a big part of the equation and its use is growing. The IT revolution plays a part in that. The EU perhaps has a part to play because the products are sold on global markets. Global manufacturers will take note only when big market blocs produce specifications for how energy efficient pieces of kit must be. The use of electricity in IT equipment is an important issue.
I agree with my colleagues. This is one of the matters on which the EU has proposed a number of initiatives, through the "Doing More with Less" concept.
Before we get into a spiral of despair, we should consider what is probably now the most successful economy in the world, which is California. Over the past 15 years or so, California has managed to grow its economy substantially, but the growth in electricity use per capita—I note John Stocks's point about differentiating between electricity use and energy use—has been nil. It has managed to grow the economy and restrain electricity demand. We have tried to learn lessons from that in developing a pan-Europe strategy.
A number of directives have appeared, such as the directive on the energy performance of buildings, which ought to have been implemented already—it should have come into force in January. To the best of my knowledge, although changes to the standards for new buildings are expected, we have not started to enforce the requirements for existing buildings—such as the requirement to have a survey done whenever a building changes hands and to inform people of the necessary improvements. One has to ask why not. The European Commission has asked the Westminster Government why that has not happened in England and Wales—although it is expected that it will start to happen there next year—and in Scotland.
Other directives are pertinent, such as the eco-design directive, which is directed at the electricity-consuming items that we use. It will not just give items a star rating—most members of the committee will be familiar with the relative ratings of washing machines and dishwashers—but will try to outlaw some of the worst gas-guzzling items.
A directive has just been passed on the encouragement of energy services and the introduction of smart metering, which will provide individual consumers, whether large or small, with direct evidence of how much energy individual items that they plug into the mains use.
All those directives are intended to address energy efficiency. Enormous potential savings have been identified. For example, we could easily use one fifth less electricity to produce the same wealth as we are producing now. Throughout Europe, we could have a 20 per cent saving, while still enjoying the same living standards as we enjoy today.
Mr Warren referred to the stabilisation in California. I seem to remember that California has suffered massive power cuts in recent times because of lack of supply. Is there anything that we can learn from that?
What we can learn from that is that we should not encourage Enron to run too many things.
How useful is thermal imaging of buildings in assessing their energy efficiency? Would it be practical or desirable for the Scottish Executive to try to encourage such imaging to assess the efficiency of individual buildings?
I have seen a couple of examples of that. I was once involved in a competition in which Chester City Council thermally imaged some of the larger housing estates in Chester. It took photographs of people's houses from above and then chapped on their doors and showed them the pictures, which showed that they were losing a lot of energy. That approach, which involved a direct personal appeal to the householders, was successful. I have also seen survey work that was carried out in Glasgow city centre, where there are good and bad buildings.
The convener mentioned barriers. One of the biggest barriers involves commercial properties, where the relationship between tenant and landlord and between developer and funder means that a host of issues arise. In commercial properties that are let to businesses, everyone desires energy efficiency, but it is hard for any of those involved to go it alone down that road. There are not enough tenants demanding energy-efficient buildings to persuade developers to provide them. Developers cannot build buildings that are more expensive than they need to be because funders look for rates of return on their capital. That wheel of inertia is a barrier to energy efficiency.
Returning to thermal imaging, I have seen images of buildings with poor energy efficiency in Glasgow city centre, but I do not know how to access that to unlock the problem.
Is thermal imaging an expensive process? Would it be a good investment for the Scottish Executive to encourage people to use such imaging?
I happen to think that thermal imaging is a very good idea indeed, because it provides people with an outward, visible sign of wastefulness. One of the great difficulties with the climate change issue is that carbon dioxide, which comes from fossil fuel energy burning, cannot be seen, so it is difficult to get the concept across to people. The benefit of thermal imaging is that it makes it transparent who is being wasteful.
I hope that I will be forgiven for saying this, but I would start with publicly owned buildings. Without any doubt, there is an enormous difference between some publicly owned buildings that are extremely well run and others that leave perhaps a little to be desired. If we could demonstrate clearly which public buildings are wasting public money—which we could do very easily via thermographic photography—those who are directly responsible for the public purse could demonstrate whether they are being wasteful. For some buildings, there would be a good story to tell, but that would not be the case for other buildings.
One of the great things that could happen—this would address the worry that John Stocks highlighted about how to get the commercial sector interested—is that public sector organisations could demand that any buildings that they occupy must be some of the best around. They might insist that their building be in the top quartile, as it were. Once the public sector did that, the entire marketplace would change for the simple reason that public sector organisations are desirable tenants—as much as anything else, because they do not go bankrupt and they pay the bills. Landlords would then feel that it was worth their while to have a decent building because otherwise they would lose out on the public sector, which in effect accounts for about a quarter of potential tenants.
I would definitely say yes to thermographic imaging. In particular, I would say yes to using such imaging for public buildings.
Irene Oldfather has a quick supplementary on that subject.
Further to that point about public buildings, I presume that members of the panel are therefore in favour of the eco-schools initiative. Do they agree that, as well as ensuring that our school buildings have efficient insulation, lighting, heating and so on, the initiative also sends a message to young people about the importance of energy efficiency?
Yes, absolutely. Friends of the Earth has supported the eco-schools programme. On the issue of good practice in schools, the committee may be aware of the work of Howard Liddell from Gaia architects, who has recently completed a school that is heated by Weetabix—
That sounds like a very good use for Weetabix.
The school has no external source of heat apart from the heat created by the kids running around. The building is so well insulated that it does not need any external source of heat.
Another example of a well-built building was recently completed by Fyne Homes Limited on the Isle of Bute. The building is called "A' Chrannag" and it provides social housing in which each flat needs only one radiator.
We have many examples of good practice in Scotland that have been around for a number of years, but the big problem is with mainstreaming. That is where we come back to the importance of building regulations. In theory, our building regulations set a minimum standard for how to build homes. In reality, however, builders are unlikely to go above building standards because doing so puts them at a competitive disadvantage. For that reason, we really need to aim high in building regulations.
We also feel that the current proposals for building regulations do not go far enough with regard to greenhouses. Some examples of highly energy-efficient glass—
I think that you mean conservatories.
Yes, I do.
Conservatives—[Laughter.]
I suggest that you take a deep breath and start again.
The review will not cover standards for those structures. That is a missed opportunity, because a lot of energy is wasted through conservatories.
And by—no, I will not finish that sentence.
You have concentrated on making the consumption of electricity more efficient. That is certainly an important issue; however, given that a high percentage of Scotland's electricity is generated by the two power stations and a number of wind turbines on my patch, I come at these issues from the other end of the industry. I suppose that we had better discuss the issue of carbon at some point.
We can do a lot about energy efficiency in public buildings, businesses and houses, but what about power stations? How much hot water is being pumped into the Firth of Forth from the two power stations on my patch? What is happening with combined heat and power? Can examples from other parts of Europe teach us better ways of harnessing the energy used in power stations?
Yes. In fact, there is an EU directive on cogeneration, which is Eurospeak for combined heat and power.
I hope that you will forgive me for having only the UK CHP figures, which have at best remained static over the past few years. Obviously, for myriad reasons—one of which is the relative price of gas—the Government is not going to meet its 2010 target on CHP.
However, there is a belief that, instead of trying to replicate large-scale cogeneration, we should consider microgeneration. In his introduction, my colleague Chas Booth said that each of us should have almost a power station in our own homes—
I will have a nuclear power station in mine, thanks.
I am sure that that comment will be duly noted and that the companies will be rushing round to offer you one.
That idea brings us back to Dennis Canavan's point about making people more aware of the energy that they use and waste. It has been demonstrated that households that have their own local boiler or microgenerator—with which, I should add, they could in principle sell electricity back into the grid—not only become much more aware of how that piece of equipment works but become more concerned about whether they have compact fluorescent light bulbs, whether their building is well insulated or, indeed, whether their conservatory is decently insulated, has modern energy-efficient glass and so on.
I feel that if people are more involved with cogeneration, more hearts and minds will be won to this cause. A great difficulty with getting people involved in this issue is people's assumption that if they flick the light switch, the lights will come on. They are not aware, for example, of the location of power stations and of distribution arrangements and other measures that need to be in place before the electricity can reach their building. The more we can devolve this matter and give power to the individual, the more likely people are to use energy in a more rational way.
It seems a long time ago, but I remember having a discussion with a former energy minister about the potential for a combined heat and power system for Edinburgh, based on a power station that is on my patch but which is close to the city. The project was physically straightforward, but it would have been expensive. However, the point is that such projects can be carried out on a larger scale.
There have been an enormous number of missed opportunities.
Do you know of any good examples of larger-scale projects from elsewhere? I hear what you say about the attractions of microgeneration and everybody being self-sufficient, but it would be a bit reckless for us politicians to depend on that and to drift into a situation in which we had a shortage of base-load electricity to keep the lights on and the fridges running. How far do you want to go with that idea?
Microgeneration is not just a brown-shirt-and-lentils concept.
Sandals.
Yes, "shirt" is wrong—I mean brown sandals and lentils. I was trying to remember what the vegetable was, rather than the piece of attire. My point is that microgeneration is not just an academic theory. Major multinational companies are involved seriously in developing the concept, and not because they wish to develop a niche market. The issue is being considered throughout Europe, with the aim of getting away from the concept that big is beautiful and the thought that other people will deal with the issue. If we are to address climate change, we must empower individuals to respond. One of the best ways of doing that is to ensure that power generation is devolved as close to the individual as possible.
By the same token, it is surely just as important to ensure that the public sector takes a lead by using generators that do not emit carbon dioxide to provide base-load power. That must be a priority.
Chas Booth has been waiting patiently to speak.
I agree completely with John Home Robertson that the public sector should take the lead. He asked about examples of best practice. Obviously, one could point to Denmark and the Netherlands as countries that have taken on the concept of microgeneration, but there are examples closer to home. I return to Woking Borough Council in the south-east of England. That is not a very sexy example, but it has an enormously successful combined heat and power station that supplies all the municipal buildings in Woking with heat and electricity, which has cut bills enormously and which is a great deal for the council tax payer. The chap who was responsible for that is now director of the London Climate Change Agency—his name eludes me.
It is Allan Jones.
That is the one. He is a revolutionary thinker in Britain but, in continental Europe, he would be seen as quite normal.
I am sure that Mr Jones will be delighted to have it recorded in the Official Report that he is quite normal.
My question is on the point that Mr Warren mentioned a moment ago about informed actions by domestic consumers. Is there a role for a good old-fashioned education campaign? Fascinating though the discussion is to you and me, ordinary people find the subject rather dry, complex and, dare I say, boring. However, we could educate them about the implications of what we do every day in the home and incentivise them by allowing them to make informed choices that would actually save money. For example, we could inform people of the significance of leaving their television set on standby and of the type of refrigerator that they buy and tell them when smart refrigerators will be available to reduce energy consumption and avoid surges in the supply system. I turn off my computer screen when I leave the office, but not many people do that. It is not rocket science.
It is a long time since we had an old-fashioned education campaign in this country—we probably have not had one since the 1970s, when the lights were going off for various reasons. We should tell people, "It might be an idea to switch that off. If you're altruistic, you'll do it because it helps the country, but if you're not, here's how much money you'll save."
Before the witnesses jump in to answer that, will one of you talk about energy efficiency trading?
Mr Gordon is right to say that we need education. Consumers need the information to enable them to make the right choice. For example, if the energy performance of buildings directive, which Andrew Warren mentioned, had been implemented, a person who was buying a house in Scotland would know how much energy the house used. We might have to wait for three years before the directive is implemented, which is a missed opportunity. Such labelling is already used on white goods and could be taken further. We should roll the concept out.
Mr Gordon is right to talk about incentives. In England, consumers in 21 local authorities can benefit from a £100 rebate on their council tax if they install energy efficiency measures, through a British Gas scheme. Unfortunately Scottish consumers are not eligible because local authorities cannot give such a rebate. I thoroughly commend the fantastic campaign on the matter that Mr Gordon's colleague Sarah Boyack is running in conjunction with Scottish Gas. In England, the average annual savings on energy bills for the people who are in the scheme is £145. They are not only quids in but they are reducing carbon emissions. Andrew Warren will perhaps talk more about how we create financial incentives to reduce emissions.
Before we move on to carbon trading, I want to talk about knowledge, because knowing how much energy we use and when and where we use it is key to solid energy management. The industrial companies that have been highly successful have based their programmes on very good metering information. It is paramount that such information should be in place.
I agree with everything that has been said about the need to increase people's awareness of energy matters. Environmental awareness is a big driver for people, who want to contribute to the world in which they live, so if we make people aware of energy use they will want to take action at home and at work. However, the approach must be driven by information and we must get metering right. In no area of energy consumption is adequate information provided in a timely enough manner to enable people to act. Strong action is needed.
The convener asked about trading activity on energy saving. The green paper talks about a white certificates scheme. The idea is to produce something fungible beyond just the energy saving, which gives absolute value to the concept of saving energy.
Such a scheme already exists. Many large users of energy in Scotland and throughout the 25 EU member states use the emissions trading scheme, which involves the trading of permits that are measured in terms of the amounts of carbon used.
The concept of white certificates is to reach down so that other players get involved. I turned to my colleague, John Stocks, hoping that he was going to come in, because the Carbon Trust has proposed just such a white certificate scheme for the United Kingdom. It would involve not necessarily individual householders—although the trust's proposal has not ruled that out—but the substantial and growing commercial and services sector, in which there are presently very few incentives because their energy bills are not that high. They often occupy buildings that they do not own, just as John Stocks has instanced. The aim is to find a way in which those who bother to invest in energy saving get rewarded above and beyond the fact that they are saving money; they should also have some fungibles to trade on.
The thinking in some parts of Brussels is that we need a pan-European scheme for that to work. I will now choose my words extremely carefully, but I think that there is some merit in first trying to see whether it can be made to work in individual states. I am a great supporter of the European emissions trading scheme for big pan-European companies, but many of the potential participants from the commercial sector are not big pan-European companies. They have a significant role to play in the Scottish economy, but they are not necessarily going to be in a position to trade with their opposite numbers in Warsaw, Valencia or Rome. There is considerable merit in the scheme proposed by the Carbon Trust. It complies with the concept proposed in the European green paper that we have before us, but it would be a purely UK-wide system, and possibly a Scottish system.
Jim Wallace, I pre-empted you on that. Would you like to probe it further with the Carbon Trust?
Perhaps my colleagues have grasped it entirely, but how would such a scheme work? When you talk about fungibles, what are you trading and who are you trading with?
I did not realise that CETS as we call it—the carbon emissions trading scheme—was a white trading scheme, so I thank Andrew for that.
White certificate. I was corrected when I said brown shirt.
First, I would refer to the EU emissions trading scheme as it stands, which is a scheme for half a dozen large, energy-intensive industries, and sites that have large energy plants—more than 20MW—on them. It includes quite a few of the Scottish universities and the big Scottish hospitals. It is quite an involvement. We are very supportive of the EU ETS.
We are very much in favour of the notion that if carbon has a value, if you have carbon credits someone else will want to buy them. If you have the mechanism to create carbon credits easily then you will want to do so because you will have a commodity that you can trade. We are concerned about whether a level playing field exists throughout Europe and whether the emission caps are in place that will create a demand for carbon credits.
Unless someone is hurting a little bit and needs to buy some credits, there is no market and therefore there is not a price. Somebody who could easily do something to create carbon credits will not do so because there is no value in it. You need to have meaningful caps to create a market to create demand for carbon credits. There are issues there that the EU needs to develop.
Investment decisions in business have long timeframes. At the moment, we are talking about the second phase of the EU ETS, which is 2008 to 2012. That is not a long timeframe for business, which needs certainty beyond that. In our climate change programme review paper we proposed something called consumption-based emissions trading.
The current EU ETS is all about looking at the emissions that arise from the primary use of energy—the energy that goes into a power station or a cement works, or the gas that is used by, say, a hospital. It does not cover the electricity use on the site of a hospital; nor does it include electricity and gas use by, say, the supermarket chains, which, collectively, are very big users of energy. Therefore, EU ETS is not hitting a lot of commercial use of energy: those premises are not incentivised at all. The core of the proposition in consumption-based EU ETS is that the concepts of emissions trading should be moved downwards and that we should involve a lot more commercial and retail organisations, which are also large energy consumers but are not being caught by the current scheme.
The written submission that we received from Andrew Warren and Chas Booth said that we should focus on reducing carbon emissions rather than energy efficiency. Are those not two sides of the same coin? Why do you say that in your submission?
There is a distinction to be made between energy efficiency and energy conservation. That is why, throughout this long period—as Phil Gallie reminded me, the issue, horrendously, dates back 25 years or so—we have retained the name Association for the Conservation of Energy. Energy efficiency means using the amount of energy that is deployed more efficiently; it does not necessarily mean using less energy overall. Energy conservation means trying to ensure that, while continuing to deliver as much as possible, overall consumption is reduced in all parts of energy use.
We talked earlier about cavity wall insulation. I did not cover myself in glory, as I forgot that, in the early 1980s, there was a scheme for that in Scotland. Money can be saved through having cavity wall insulation; however, the consumer can then go out and spend that money on a cheap air ticket to somewhere or other. In terms of overall conservation, that does not assist us very much. We are looking to move towards all forms of energy and all forms of carbon having an absolute value. We are trying to reduce the absolute amounts of consumption—in other words, to cap the total amount of consumption in order to address the issues of climate change and, as we have discussed, security. The less energy we use, the less we have to import.
In almost a throwaway line, you said that a scheme could perhaps be introduced in Scotland. Can you elaborate on that? Is the white certificate scheme something that we could do in Scotland, as opposed to in the UK? How would you kick-start it?
Given the porousness of the borders, it would probably be more appropriate to have the scheme work throughout the United Kingdom. I can see how you could have micro schemes working within a certain part of the Scottish economy, if you were so minded. I am looking at my colleague, to see whether he wants to comment on that.
Chas Booth indicated disagreement.
If the scheme was introduced throughout the UK, however, because of the porousness of the borders, we would have to consider whether to bring in Ireland. That is why part of the thinking behind the green paper that is before the committee is to do with Europe-wide white certificates. I am a little leery, however, about the idea of including relatively small consumers in that. Sainsbury's and Tesco do not fall into that category, but there are some relatively small companies that I would hesitate to ask to enter into a trading scheme that stretched across the whole of Europe.
There is no reason why one could not set up some form of micro scheme. I posit this having not previously considered the idea, but why should that not happen in, for example, the public sector in Scotland? Why could there not be a means of trading in the public sector that would reward energy managers who delivered and castigate those who did not?
There is a lot to be said for getting public buildings right. They are the buildings that set an example for the rest of the country and demonstrate to people that what politicians say is not just rhetoric; that they are serious about the issue. It puts out a message that government is trying to address the key issues of competitiveness, of security and of improving the battle against climate change.
I make no apologies for returning to the point that one of the best ways of demonstrating that we are serious is by leading by example—it is a terrific way of doing things. We certainly have to pick up on the idea of motivating and—if you like, although the phrase has dreadful, pejorative connotations—educating individuals. Saying that makes it sound as if we are telling people, "We must educate you."
Leading by example is a terrific way of doing things, as is Dennis Canavan's suggestion of using thermographic surveys, which give people pictures. It is a tremendous idea to use that sort of thing to demonstrate that public money is being used sensibly.
When Jim Wallace was the Deputy First Minister, he set up a rotating fund for local authorities. Are you happy with the way in which the fund is being dealt with?
It has been on the go only for a year, but it may be time for me to lodge a parliamentary question on the issue; I could ask about evaluation and what my successor is doing with the fund.
I encourage you to do so.
It was a first-class idea.
It is a super idea; it got things moving. I cannot think who could have thought of it.
Another, similarly good, idea is the zero-interest loan scheme. It came out of Scotland and a number of countries have picked up on it. In acting as a bank, the scheme managers can say to relatively small and medium size companies, "We know what your core business is. We know that you don't really want to go to the bank to borrow money to save energy. We know that what you want to do is a good investment; we will act as the bank and you can pay back the money after five years." The scheme is terrific. How much is the budget?
It is currently £1.4 million.
I suggest that we stop the mutual appreciation society that is going on here. I am very aware of the time.
I have a quick question on joined-up European directives. When we talk about public procurement, do the European procurement rules allow a nation state or a region to be prescriptive about such things as preferential treatment for energy efficiency products?
The issue has come up before now. I think I am right in saying that, broadly speaking, it is allowed as long as it is overtly stated in the tender documents. That said, people need to take legal advice each and every time. When someone tries to do that as an add-on, it is more difficult to achieve. That is equally true in the private finance initiative context. Article 5 of the energy end-use efficiency and energy services directive—
A title that was kindly supplied by your colleague.
I am grateful to my colleague; I would have remembered it in any case.
The directive enables minimum environmental and energy performance standards to be set and for them to be applied through the usual tendering process. The new directive has been agreed and it will have to be rolled into force over the next two years. The requirement is stated unequivocally, whether for a PFI or any standard public procurement contract. It is perfectly possible to require really tough environmental standards—indeed, it makes sound sense to do that.
That is a fairly good point to end on. If all of us could make sound sense, we would probably get on a lot better. Thank you, gentlemen, for your evidence today, which I found fascinating. The committee appreciates the way in which you imparted your knowledge. Some of what you said was fairly technical, however. I hope that you will find it acceptable if the clerks get in touch with you if they need further information or clarification.
Yes.
Yes.
Yes.
Thank you.
Meeting suspended.
On resuming—