Speak softly, carry a big stick

Once upon a time they were "voluntary". Then they became "binding voluntary". Now they are being described as "negotiated". Andrew Warren, director of the Association for the Conservation of Energy, on industrial energy efficiency, tax, and the persuasiveness of Government.

Whatever the terminology, they all are agreements, with the same end in view. And they are effectively the most important energy efficiency game in town for any business that can even remotely describe its activities as "energy intensive". And whilst inevitably much of the attention is upon the manufacturing process, the same companies will be occupying many buildings which will quite legitimately fall within the same agreements.

One hundred years ago Theodore Roosevelt coined an aphorism to describe his country's preferred approach to international diplomacy. It was: "Speak softly and carry a big stick." That is precisely what those charged with organising these agreements are seeking to do.

Potential investments
For years we have all known that there are an awful lot of potential energy efficiency investments in the heavy manufacturing sector which simply don't happen, despite being cost-effective, even at today's low fuel prices. According to the official Treasury figures, energy intensive industry is still wasting 11% of the energy it buys. That is £1 in every £9 spent.

Why does this happen? It is due to a mixture of factors: lack of qualified staff, lack of available capital, lack of willpower. Sometimes it is just somebody getting sick at the wrong time. Or fighting a turf war within the enterprise. Or even just plain lack of effort.

Unless...what?
The same is equally true of the buildings which these companies occupy, particularly if they are on the same site as the process plant. The wary eye of the Environment Agency will be upon them too. Under a new Act of Parliament passed just this summer covering pollution prevention and control, emissions of carbon dioxide become substances which the Environment Agency will now monitor and investigate. The Agency will be in a position to demand installation of the best available energy efficiency technologies (and techniques) - albeit not at "excessive" cost - by the company under investigation.

Because those in charge of energy use within a plant often have negligible responsibilities for the related buildings, these have often ended up as one of the most neglected energy-using parts of the entire business process. Earlier this year, Dr David Strong, head of the Building Research Establishment's Conservation Support Unit (BRECSU) declared that: "Industrial buildings have the greatest potential for energy - and hence carbon dioxide - savings of any part of business-occupied buildings."

It was when Government realised that there was all this potential for energy savings, and hence climate change emissions savings, being foregone - on paper unnecessarily - that it was decided something had to be done. Hence the proposed Climate Change Levy, set to be imposed on every business in the country from April 2001.

That is Teddy Roosevelt's Big Stick. Government is currently waving it over the head of every significant energy user, saying they will impose the levy, unless... Unless what? Unless the companies in question sign agreements promising to deliver these elusive energy savings, off their own bat. Without the stick having to be used.

Over recent months all the major sectors have been in deep discussions with civil servants about what savings they can promise to deliver in exchange for lower rates on the climate change levy. These are deep, tortuous debates. Mostly they take place under the banner of the relevant trade association, the membership of which may - or, importantly, will almost certainly not - include 100% of companies trading in the area.

Sub-agreements
When eventually signed, these agreements will bind everyone in the sector. With the presumption that if the sector as a whole should fail to meet the promised savings, a higher levy rate will be clawed back from every company. That is why some companies are asking for their own sub-agreements, to protect themselves should others default.

Meanwhile, the Environment Agency is also entering into quite separate negotiations, assessing matters not on a sector by sector basis. Not even on a company by company basis. But on a site by site basis. An entirely different approach.

Just to complicate matters, the Environment Agency's formal remit is restricted exclusively to overseeing energy efficiency of process plant. Not the buildings around them - although obviously their officials can and will be making strong reccommendations on improving them.

It is of little surprise then, that key industries, like the papermakers, are now making it a condition of their "signing up" that they will be excused visits from the Environment Agency as well. In theory that may be a (moderately) rational approach. The problem is that the Environment Agency's duties are carried out not just under UK law, but under binding European legislation on Integrated Pollution Prevention & Control. And it is simply not possible for any country, let alone an individual industry - however strongly they argue - to be allowed to opt out.

Unlike on the Continent, all these negotiations to avoid the full climate change levy are taking place without any third party involvement, intended to verify compliance, so as to ensure the credibility of the targets finally agreed. More worryingly, there is no mechanism for any independent monitoring and verification, even linked to intermediate targets. There is to be no complementary enforcement mechanism. We have, in effect, to trust the civil service negotiators to ensure:

  • a) the agreement delivers more than would have happened anyhow, and
  • b) the accuracy of any savings claimed in the future.
In the absence of a genuinely independent examination of the figures, either current or future, the Government is going to have to insist that participants publish far more details concerning their energy usage than ever before. Which will almost inevitably lead to heated arguments about commercial confidentiality.

These will engender far more acrimony than following the example of, say, Germany, where an independent institute is charged with inspecting annually the figures for energy saving, and authenticating the savings claimed. Of course, such an investigation can, and should, be carried out simultaneously by the relevant Government officials. But as signatories whose reputations are also on the line, it can easily be argued that they have a strong vested interest in giving the results the all-clear.

Huff and puff
I am all in favour of Government treading as softly as it can during these negotiations. Whatever the exaggerations, the full-rate levy could have imposed big problems for some energy intensive sectors. But all the huffing and puffing should not be allowed to camouflage the truth.

As a result of entering into these agreements, these sectors will be permitted to forgo paying many hundreds of millions of pounds to the Treasury. Indeed, were there to be agreements signed with every single one of those sectors entitled to qualify for the 80% rebates now on offer, in return for agreed commitments to cut consumption, the Treasury will end up forgoing - at least on paper - well over £1.1 billion every year. That is not small potatoes, by anybody's standards.

It is only right that what fuel will be saved, and then what has been saved, is placed firmly on the public record. Or else approved by some authoritative, non-partisan institution. Emission reductions must not just be done. They must also be seen to be done.



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