Treasury Committee evidence on Decarbonisation and Green Finance
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The Treasury Committee today took evidence on the subject of
Decarbonisation and Green Finance
. The following is a brief
summary of the question and answers. The full transcript will be
sent to you as soon as it is available. Witnesses were: Libby
Peake, Head of Resource Policy, Green Alliance; Lord Turner of
Ecchinswell, Chairman, Energy Transitions Commission Baroness
Worthington, co-chair of the newly-formed group Peers for the
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The Treasury Committee today took evidence on the subject of
Decarbonisation and Green Finance
. The following is a brief
summary of the question and answers. The full transcript will be
sent to you as soon as it is available.
Witnesses were:
Baroness Worthington was delighted the Treasury was taking seriously the issue of decarbonisation. The key role of the Treasury was to ensure the path taken was fiscally sensible and balanced. Lord Turner said the tax regime was crucially important and needed to be integrated with the overall strategy. Taxes could be differentiated to create greener behaviour, including subsidies for use of green energy which might take time to become financially competitive. There were also distributional issues which had to be taken into account. It was inevitable that passenger road transport would become cheaper in an electric form than in a combustion form. But residential heat would increase in cost as a result of decarbonisation. It represented about 5% of consumer expenditure, so careful thought had to be given to the subsidy and support regime. Libby Peake said the Treasury was in a strong position to coordinate a cross-departmenmtal response to the net zero target. Mr Stride picked up on the last point, quoting the Environmental Audit Committee which said the Treasury had 'ridden roughshod' over other departments’ environmental objectives and projects. Mr Molho said that was the case five years ago, when investment uncertainty caused a negative impact on the perception of the UK as an investible market by companies like General Electric, Samsung, and Vestus who were all interested in investing in offshore wind supply chains. But today the Treasury was playing a more active role in the framing of low-carbon policy. Baroness Worthington agreed that things were getting better, but pointed out that other departments had suffered from a lack of joined-up thinking. There was also an imbalance in that lobbying was done by ‘incumbents’ with an interest in protecting the status quo and not by people who were busy trying to bring solutions to market. Lord Turner added that the decision five years ago to remove the net zero requirement for new houses - an almost costless activity - had been bizarre, although it was not clear whose decision that had been. Libby Peakes said a more nuanced view should be taken of meeting the net zero targets. Some models suggested that meeting the greenhouse gas reductions in the first four carbon budgets would deliver 1.1% increase to GDP by 2030. The CCC had estimated that shifting 1.7% of travel to walking and cycling would result in £2.5 billion savings to the NHS every year. Felicity Buchan (Conservative, Kensington) and Steve Baker (Conservative ,Wycombe Commons) asked about the cost of reaching net zero. Rushanara Ali (Labour, Bethnal Green and Bow Commons) focussed her questions on transition and the impact on certain sectors. Libby Peake said the Green Alliance would like to see an improvement in resource efficiency and activity like the circular economy. Ms Ali asked if the government’s actions were fit for purpose and what else could be done. Lord Turner pointed out that the first step was to define what net zero really meant, but great strides had been made in the degree of focus over the past two years. Replying to Angela Eagle (Labour, Wallasey) on the subject of Treasury modelling, Baroness Worthington said there was a place for micro and, in particular, macro-economics, but it was also necessary to take an old-fashioned moral stance. Ms Eagle commented that getting the Treasury to change its Green Book methodology would have a transformative effect on other departments’ projects. She asked if it mattered that the Treasury had not set out a comprehensive funding plan or pathway for net zero. Baroness Worthington said the timing of net zero planning was important and it would be incredibly helpful if the Treasury could help make a case for that. Replying to Alison Thewliss (Scottish National Party, Glasgow Central), Baroness Worthington said the devolution of the Climate Change Act to the Scottish Parliament had worked well. Scotland was well-placed to move faster towards net zero. Harriett Baldwin (Conservative, West Worcestershire) asked about onshore wind, solar and other energy projects. Libby Peake pointed out the role of planning regulations and highlighted the Treasury’s part in ensuring consistency across government. All members of the panel agreed that onshore wind was the cheapest way of getting electricity to market. Lord Turner said it was most important to focus on policy regimes that supported the development of a full range of storage and flexibility devices. Given her experience as a former International Development minister, Ms Baldwin focussed on the importance of encouraging the developing world to adopt renewable energy sources. Lord Turner pointed out that the whole of sub-Saharan Africa had less developed solar PV than the Netherlands. The crucial thing was the mobilisation of global capital for those parts of developing economies where the cost of capital was still too high. This was a crucial issue in the context of COP 26. Julie Marson (Conservative, Hertford and Stortford) focussed on Treasury incentives regarding lifestyle choices. Lord Turner said the most effective thing for people to do would be to substantially reduce their consumption of red meat. If there was to be a tax in this regard, it would have to apply also to imports. Libby Peake said there was an argument for replacing VAT with a tax which reflected carbon impacts. On the subject of residential heating, Lord Turner said it was the relatively well-off and the elderly who used the most gas. Also, there were things that could be done to insulate houses, but for poorer people the cost of borrowing to insulate was massively higher than it was for wealthier people. So he encouraged the committee to press the Treasury to do a deep analysis into how the distributional consequences worked. Things like zero-interest loans or grants to enable lower-income people would be required. Baroness Worthington added the same applied to access to capital to pay for low-carbon travel. Anthony Browne (Conservative, South Cambridgeshire) asked if VAT on domestic fuel should take into account its carbon footprint. Lord Turner said that at the moment there was a perverse favouritism towards gas over electricity and Baroness Worthington commented that there was a policy to reward renewable heat, but that was a gift from the EU. She urged the committee to request that the RHI be reviewed, widened and simplified. Mr Browne asked to what extent businesses should play a pro-active role in becoming carbon neutral and if there could be incentives from the Treasury. Nick Molho said there was huge business enthusiasm for net zero, especially in industries where there could be new opportunities for competitiveness. For example, new product standards with imbedded carbon targets could redefine markets. Libby Peake added that the proposed plastics tax had already had an effect. She suggested the Treasury should explore things like raw material taxes in light of the net zero agenda. Replying to Liz Kendall (Labour, Leicester West), Baroness Worthington said the single most important change the Treasury could make to reduce carbon emissions was probably to do with the financing of funding of overseas projects through export finance facilities, on which a far higher bar could be set. Nick Molho added that action could be taken on climate risk disclosure, especially in relation to the upcoming COP. Lord Turner agreed that the issue of disclosure was very important and he thought the Task Force on Climate-related Financial Disclosures had had a bigger impact than he anticipated. Linking that to Mr Browne’s earlier question on the importance of corporates, Lord Turner said that over the past two years this had been a very powerful discipline. The next step was transparency and precision. That is, when a company said they had a net zero commitment, was it clear what they were talking about and what assumptions they were making? The Task Force on Climate-related Financial Disclosures had created good momentum. More value could be gained by reinforcing it, making it more transparent, giving it more discipline and defining what a net zero target was. Alison McGovern (Labour, Wirral South) asked if there was more that the regulators of London’s capital markets could be doing. Lord Turner said China was 20 times more important than the UK in this respect. Engaging with other countries was exactly the purpose of COP26. Baroness Worthington said the best example that could be given to the world would be to show that net zero could be achieved without damaging economic growth, which we had done with a plethora of technologies and policies. She concluded the session with the contention that the Treasury had not received enough credit for ‘going upstream’ by applying a tax to allow industry to adapt to a completely different system. Banning single-use plastics was a ‘bloody useless policy.’
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