Air, carbon and resources � the future

by Danny Stevens, Policy Director, Environmental Industries Commission

The range of environmental challenges we face - from climate change to land contamination, from air quality to water pollution - are a product of the greatest and widest- ranging market failure ever seen. When we emit greenhouse gases, or our vehicles emit harmful air pollutants, or our factories discharge harmful pollutants to our rivers and seas, the market does not bear the true cost of the damage caused. Those that damage our environment do so for �free,� whilst we, in society, bear the cost, whether it�s breathing polluted air, dirty rivers, or contaminated land.

The most appropriate way to correct a market failure is through Government intervention. If the Government intervened to put a realistic cost on pollution, it would force whole industries to change in order to survive. It would also create huge new business opportunities for the world�s environmental industry, helping to establish thousands of new businesses, hundreds of thousands of new jobs and huge export potential for those countries that lead the market.

The UK�s international competitors, from the USA to South Korea, recognise this and have intervened in their economies through multi-billion dollar �green new deals� that will help create thousands of jobs in their environmental industries. These are the countries that will gain an early-mover advantage in developing the green technologies that will guide the transition to a low carbon, resource-efficient economy and will soon be in a position to claim a share of what is already a $3 trillion global market place - and growing rapidly at over 5% a year.

The worldwide environmental industry will be a fiercely competitive sector and, if the UK is to compete, we need an ambitious strategy of Government intervention in all sectors - embedding low carbon, sustainability and resource efficiency into the very fabric of the economy. Without the right policy framework in place, business will not have the confidence to invest, leaving our international competitors to seize huge new environmental markets.

The environmental technology and services sector moves forward principally through advances in the regulatory framework. If the Government is to provide the confidence businesses need to invest in innovative new environmentally friendly goods and services, it needs to put in place a long-term, ambitious environmental policy framework right across the economy.

Carbon Reduction Commitment

The Government�s Carbon Reduction Commitment (CRC) is a welcome example of the type of policy we need. By introducing the scheme, the UK is taking a lead against international competitors in reducing emissions from large non-energy intensive organisations such as banks, supermarkets, hospitals, local authorities and large offices.

An ambitious CRC that drives vast improvements in energy efficiency � and, therefore, makes a full contribution to meeting the UK�s climate change targets � will help position the UK as a global leader in the provision of energy efficiency technologies and services. Establishing this technology and skills base in the UK will help create new business and, potentially, thousands of new jobs.

If we are successful in this, we will start tovsee other Governments around the world adopt similar measures. As they do, UK business will be ready to respond to the increasing demand for their skills and technologies - creating new business opportunities for the UK.

After three years of consultation, the Department for Energy and Climate Change recently published its final policy decisions on how the CRC will operate. It will capture all organisations whose electricity use is above 6000 MWh per year (it was originally above 3000 MWh).

The Government defines cost-effectiveness as carbon savings that occur at carbon prices below the shadow price of carbon. Following the Low Carbon Transition Plan, the Shadow Price of Carbon has been increased from £27 to £51 - and this is due to rise gradually to £60 per tonne in 2020. This means that a reduction of the coverage threshold becomes even more cost effective. EIC believes that the Pre Budget Report should reduce the threshold from 6000MwH of electricity to 3000MwH from the start of the first capped phase.

Opportunities to reduce energy demand are particularly high in the large nonenergy intensive organisations covered by the CRC. EIC does not believe that a 7.6% reduction from the scheme is a sufficient contribution to meeting the Government�s target to reduce emissions by at least 32 per cent by 2020. The EU Energy Efficiency Action Plan suggests that the emissions savings potential in CRC sectors is closer to 20 per cent.

Climate change is by no means the only important environmental issue, nor the only important aspect of developing a green economy. There is a danger that the emphasis on �low carbon� will obscure other environmental and sustainability issues � forfeiting the huge economic opportunities they can create.

A strategic approach to green jobs and skills must also address issues related to water, air quality, land contamination and soil quality, and the efficient use of resources.

Using waste as a resource

The UK economy needs to make a rapid transition away from a linear process of resource extraction, manufacture, consumption and disposal towards a system where resources remain in use.

There can be no doubt that the opportunities for resource efficiency are huge. Businesses that implement new and innovative solutions to reduce waste tend to experience significant cost savings.

In February 2009, for example, Defra published the report �Business Resource Efficiency and Waste (BREW) Programme: Disaggregated Metrics Results for 2006/07�. The report highlights that resource efficiency programmes funded by BREW achieved £200 million of short-term cost savings to UK business, equivalent to an average of £3.97 for every £1 spent. The Waste and Resources Action Programme alone reports long-terms savings of £29.30 for every £1 spent.

Despite this, it remains the case that relatively few companies take up the opportunity to improve their resource efficiency. The House of Lords Science and Technology Committee report �Waste Reduction� recently concluded, �many businesses still fail to recognise the financial costs of their waste and even where waste reduction strategies are known, an understanding of how to implement them is lacking�.

We believe that �developing the evidence base for improving businesses' resource efficiency� must be accompanied by strong, well-funded business support bodies that can provide direct, tailored guidance to businesses, particularly small- and medium-sized enterprises.

Much of the previous funding for resource efficiency programmes was derived from Landfill Tax revenues which, when introduced, were to be revenue-neutral. The recent decision to abandon this revenue neutrality means that the money cut for resource efficiency is now absorbed into the overall Treasury pot.

This year�s Budget announced that that the standard rate of landfill tax will continue to increase by £8 per tonne on 1 April each year from 2011 to 2013. EIC believes that the receipt of this additional revenue provides a valuable opportunity to, at the very least, reverse funding cuts for resource efficiency programmes made in 2008.

Defra�s decision to bring together a range of resource efficiency bodies under the leadership of WRAP means that this increase in funding can be targeted directly through �one stop shop to help businesses, organisations and households become more resource efficient�.

Air quality

Based on a national average, poor air quality is currently estimated to reduce the life expectancy of every person in the UK by an average of 7-8 months. A recent report from the Committee on the Medical Effects of Air Pollutants increased estimates of the mortality rate from long-term exposure to particulate pollution.

Road transport is one of the most significant contributors to poor air quality. This problem is significantly worse in hotspot problem areas, such as cities. The UK is currently failing to meet its targets for the two key pollutants of NO2 and PM10 set out in the EU. It is estimated that the UK currently exceeds the NO₂ levels along 3500km of road and Defra expects that about 850km will still exceed the NO₂ limit in 2015.

EIC believes that tackling poor air quality from road transport will not only have significant benefits for the environment and people�s health, but also create many new jobs in the UK�s environmental industry. The most effective way to tackle poor air quality is to focus on hotspot problem areas through targeted, local programmes � such as Low Emission Zones � that are aimed at cleaning up the most polluting vehicles.

The Defra Local Air Quality Management guidance is, therefore, a welcome tool for helping local authorities improve the management of air quality through measures such as Low Emission Zones. However, the guidance provides insufficient Government support for local authorities to adopt these measures cost effectively. EIC believes that the most effective way forward - in a way that complements national policy whilst maintaining local autonomy - is through the introduction of a National Framework for Low Emission Zones.

Approximately 3500 people are currently employed in the UK by the retrofit market for pollution reduction. Furthermore, an estimated 80 per cent of the UK�s retrofit market is supplied by UK-owned companies. The UK�s share of this market could increase significantly through effective Government support for the introduction of Low Emission Zones across the UK � helping create many new jobs.

For more information:
t: 020 7935 1675
w: www.eic-uk.co.uk