Oral evidence: Assessment of EU/UK environmental policy, HC 537Wednesday 6 January 2016
Oral evidence, 6 January 2016.
Witnesses
Nick Molho, Executive Director, Aldersgate Group, and Dr Stephanie Merry, Head of the Ocean Energy Group, Renewable Energy Association, gave evidence.
Chair
We are going to proceed to the second session this afternoon with our second couple of panellists here. Happy new year to you; you are very welcome. Thank you for bearing with us. We have had some very interesting inquiry sessions already, and I am sure this is going to be equally interesting as well. We have Mr Nick Molho, Executive Director of the Aldersgate Group, and also Dr Stephanie Merry, Head of the Ocean Energy Group, and of course with links with the Renewable Energy Association as well. If you are happy, because time is running on, we are going to go straight into it and we are going to begin with Carolyn.
Carolyn Harris
Thank you. You both represent a range of UK businesses. Do you believe that the EU environmental policy has a positive or a negative effect on the businesses you represent?
Dr Merry
I represent a fairly small sector in the renewable energy sector, which is wave power and tidal stream power. It is a new technology that does attract a lot of attention from the regulators, and we find that some of the EU environmental directives present regulatory burdens that hinder the sectors growth. We would like to see certain changes made in order to help to take the sector forward.
Carolyn Harris
I represent Swansea East, where the tidal lagoon is. Do you believe that that has had an effect on the project?
Dr Merry
I am sure that they, like every other marine energy project, will have had to do a very large environmental impact assessment. I can give you an example of the sorts of things that have to happen off the Isle of Wight, which is my own area. They had to submit an environmental impact assessment for a 30 MW project, which is relatively small. It cost over £1 million, and it came to just 21 volumes. That is an example of the type of thing if you have a small company, and I believe Tidal Lagoon Ltd is quite small. The human resource, the cost, and the time implications of that are all detrimental to marine energy projects, and in fact the UK is the world leader in this sector at the moment. As I say, the sector is, by definition, environmentally aware. We are trying to reduce carbon emissions and to mitigate climate change, which I see as the biggest environmental issue that we have to deal with at the moment, but we do need to support them and reduce these legislative areas.
Nick Molho
Aldersgate Group works with corporate members who come from across the economy: food, retail, manufacturing, finance, energy and so on. When we look at it from across the economy perspective, we would say that, on the whole, EU environmental policy has had positive impacts on businesses, although there are clearly some areas of improvement, which I would be very happy to touch on during the session. In terms of the overall impact on businesses, the key feedback we have received from corporate members on the impact of the EU environmental legislation, which signals an overall positive effect from that legislation, is very much threefold. The first one is that EU environmental legislation has, on the whole, provided more of a level playing field for businesses between the markets of different member states through, in particular, the introduction of common environmental standards. It also means the businesses see a reduction in administrative compliance costs because they do not have to comply with different rules in every single member state. The second area of feedback has been that by addressing environmental issues at an EU level you are able to address these issues by pulling resources from across Europe, which can provide a more cost-effective delivery of those environmental improvements. The third and final key aspect was around the creation of market opportunities that the introduction of common standards, such as product standards, that deploy across the single market will give businesses by providing clear market signals as to where innovation is required and the kind of standards that have to be met with in order to access the single market. Those are the overall key positive aspects that we have gathered across the membership but, as I say, there are important areas for improvement going forward as well.
Geraint Davies
Following on from that, I was going to ask whether you thought that business compliance costs are adequately considered during the design and implementation of EU environmental policies. But alongside that, maybe you could comment on this issue about TTIP as well. You have made the case that standardisation lowers compliance costs and can provoke environmental innovation, but there is a concern that with ICS in TTIP we might find a situation where there is a chilling effect on environmental legislation from big corporations threatening to sue EU Governments, particularly fracking companies.
Nick Molho
We have not been involved in the ins and outs of the TTIP negotiations, but a theme that has come across from several of our corporate members has been the fact that a lot of work has gone in across European businesses to be able to comply with a wide range of environmental standards that apply across the single market and to meet all the different product standards and energy standards that apply across the EU. There is, therefore, a concern that if those were to be diluted through TTIP, they would lose some of the competitive advantage that they have built over the years, thanks to the introduction of those standards. That is very much a theme that we have come across from our corporate membership.
Geraint Davies
Do you feel that those environmental standards and the imperatives from Paris should be wholly integrated into TTIP so that there is not slippage and those costs are not lost, and we move forward rather than backwards?
Nick Molho
I think it would be important that the progress that we have achieved through the developing of those standards is preserved. It makes sense from a UK and European business point of view because our businesses are used to meeting those standards and, therefore, they should be maintained. On the cost perspective that you mentioned—that also slightly touches on the issue that you mentioned in a previous session around the REFIT “think small” strategy—the high-level group on administrative burdens, which is the initiative that was set up by the European Commission to review the impact of environmental regulations on businesses, estimated in its report in 2014 on cutting red tape in Europe that EU environmental regulations amounted to just under 1% of the administrative burdens that impact on businesses in Europe. That is the latest statistic that I am familiar with. In terms of what corporates tell us on a day-to-day basis on how EU environmental policy is developed, we have not heard any particular concern around the EU failing to take into account the cost and economic benefit of different sets of environmental legislation. A concern that has come out is the importance, going forward, for the EU to think a bit more holistically when it develops EU environmental policies, by which I mean that when EU legislators are trying to address a particular environmental problem they need to also think about the impacts that developing a particular policy will have on other environmental priorities. A good example is in the waste sector. In the past, waste legislation has developed on an economic sector-by-sector basis, or it has been developed on a hazard basis to ensure the minimisation of harm from goods that were previously used. The issue that this has created is that now we are often in a situation whereby materials are declared as waste too early and that prevents the reuse of those materials which, if it was allowed to go ahead, would make the European economy more resource-efficient. That is one of the specific issues that the circular economy package that was introduced last month is supposed to look at and that is one that we are particularly engaged in.
Geraint Davies
Are you saying, therefore, that the environmental policies could be redesigned to be less costly to business and more effective to the environment at the same time?
Nick Molho
I would say that, going forward. A specific example is the circular economy package that is going through the European law-making process right now, which I would encourage the Committee to scrutinise. We need to ensure that the way in which new environmental objectives are set look at issues on the whole. When you are setting a recycling target, for example, you should also look at the energy efficiency impacts of what you are proposing. When you are designating a material as waste, you should ensure that you are not designating that material as waste too early, which would then prevent the use of a secondary material in another economic sector that could make good use of it, and that would allow you to retain the economic value of materials within that economy for a longer period of time. That would make both environmental sense and economic sense, which is again a key part of the circular economy package that is going through the Parliament at the moment.
Geraint Davies
Do you want add anything, Dr Merry?
Dr Merry
Yes, although this is not my area of expertise, but representing the REA, I can say that we believe that EU-driven legislation has speeded up the modernisation of the waste industry in the UK and improved the environmental impacts of waste, and that there were advantages around the directive decreasing diverse negative impacts on surface groundwater, soil, air and human health. I am sorry I cannot go into more detail than that but, as I say, it is not my area of expertise. We do feel that that area has been beneficial.
Peter Aldous
At the outset I should point out that I am patron of the Aldersgate Group and I do work quite closely with the REA through my parliamentary work. I would like to turn Carolyn’s question around slightly. Several member states would like the Commission to set regulatory burden reduction targets, I think. Do you think this would be beneficial to your respective members or not?
Dr Merry
Yes. I am sure you would like me to expand on that a bit. One of the things we would like to happen is for the regulatory burden of these environmental directives to be proportionate to the size of the project. Perhaps I can give an example of the marine current turbines project in Strangford Lough, which I know you will be very familiar with. Initially it was a £10 million project, and then it had to implement £2 million-worth of environmental monitoring on top of that, so that was 20% of the project costs. This disincentivises investment in the sector and diverts money elsewhere so that technology does not go forward, for one thing. On some of the things they had to do, for example they had to have a marine mammal monitor. Sorry, I should explain—this is a SAC for marine mammals, particularly harbour seals. So they had to have a marine mammal monitor on the platform all the time, with their finger above the red button, and if one came within 200 metres of the turbine, they had to press the button and stop it operating. It was only allowed to operate in daylight hours because the monitor could not see in the darkness. They had to charter helicopters with infrared cameras to go at night and pick out where the seals were hauling out. I am not quite sure what that had to do with the harbour seals around the turbine, but this was one of the things they were required to do. They also had to strap GPS on top of seals’ heads so that they could follow their tracks in and out of the harbour. We all looked with great interest at these tracks going across to the island and then came back again, thinking, “What does that prove?” What we would like to see is proportionality within this type of environmental legislation. Also we would like to see the positive impacts of marine projects included in the environmental impact assessment, because marine renewable energy is trying to do positive things for the environment. At the moment it is all about negative impacts.
Nick Molho
From our perspective, there are two key issues. The first one is not so much an issue of reducing regulatory burden as it is an issue to make existing regulations more efficient. The circular economy package is again a very good example. What we would like to see happen at the European level is the development of a market for secondary materials that would allow materials that have already been used to be used again across a different economic sector. That requires clear quality criteria that will give consumers confidence as to when they trust the viability of secondary materials. It requires a revision of end of waste rules to ensure that materials are not declared as waste too early. All these are issues that the European Commission has indicated a willingness to address in its recent White Paper, but the detail is not there yet and that is something that will be particularly interesting to follow through. Just one additional point on what Stephanie mentioned: when it comes to the birds and habitats directives, one of the issues there that comes quite regularly from across our corporate membership is that while EU environmental legislation has helped to create more of a level playing field across different markets, there are cases where the implementation of those directives across different member states is not always uniform and where there are fairly significant differences. We know of offshore wind developers, for instance, that develop projects in Denmark, the Netherlands, Germany and the UK, and that find themselves having to comply with different sets of standards or having to provide different types of environmental evidence. That makes a project more complex and, therefore, more costly. That is where seeing a more common implementation of those directives across different member states would simplify compliance in business.
Dr Merry
I would agree with that.
Mr Lilley
You talked about the designation of waste. I was not quite sure whether there is some official body that designates a material as waste, or whether it is the companies themselves that say it is waste.
Nick Molho
It is a good question. It is quite a complex area, but I will give you an example that hopefully will help explain the issue. Most of the EU’s waste legislation will provide high-level definitions of what should be considered as waste and not as waste, but will leave an element of discretion to the member states and to national regulators as to how they want to implement that. The concerns that I mentioned around the need for more efficiency in waste regulations is both an issue of EU institutions providing clearer rules, and also an issue of national regulators making more pragmatic decisions as to what should or should not be designated as waste. A concrete example is one of our members, National Grid. As you will know, they transport electricity across the country by using aluminium conductors. Previously, at the end of their lives, those aluminium conductors would be sold for scrap. In 2013 National Grid decided to pilot a new initiative with its manufacturer, Midal Cables, which is based in Bahrain, whereby National Grid would resend the conductors to Midal Cables, and it would reprocess them and give them back to National Grid. The advantage was that National Grid would not have to source new aluminium, it would reduce the cost of replacing those cables, and it would also protect them against the fluctuation in the cost of aluminium. They sent 15 tonnes of aluminium conductors back to Bahrain, but that turned out to be a very complex exercise because the national regulator categorised the conductor as being waste and this required National Grid to take extensive legal advice, as well as very extensive discussions with Customs and Excise, before having the right to transport what was categorised as waste out to Bahrain and then getting it sent back to National Grid. We have another example from the construction industry where one of our members excavated a significant amount of virgin clay that a brickworks nearby wanted to reuse, but because the clay had been excavated, it could be interpreted as being waste and in order to transport the clay, he needed to have a waste transport licence. That was too complex and, therefore, he did not go ahead. I should stress that this is particularly an issue of areas where EU legislation could be clearer, but is also an issue of national regulators making pragmatic and intelligent decisions in areas where they are given precisely the flexibility to interpret those directives. If I may just finish on that note, a concern that comes from across our members, whether it is in the water sector, the construction sector or others, is that the impacts of the cuts on Defra and its regulatory agencies risks limiting the varied resources of those regulatory agencies, which in turn can make those pragmatic decisions more difficult. In order for business to innovate and be effective, we need effective regulatory decisions to be made and that requires resources in the first place.
Caroline Lucas
I want to get back to the circular economy package that you already mentioned briefly and ask you a few related questions. First, what impact is that package likely to have on UK businesses that you are aware of? How well is it aligned with the Commission’s commitment to implement better regulation? Is there any indication that this latest intervention has improved on, built on and learned from past approaches to promote sustainable business practice?
Nick Molho
The first thing I would say is that what is positive about this package at the high level is that it does not just look at the waste issue; it looks at a product throughout the whole lifecycle of a product. That was a really important issue for a lot of our corporate members in that before you get to the stage of disposing of a product, there are plenty of opportunities to try to reuse materials. In the past those opportunities were not really captured by EU legislation. The package is more pragmatic from that point of view. I think the overall ambitions seem right, but what is lacking at the moment is detail as to how markets for secondary materials will be set up and how quality standards will be determined. What are the standards that secondary materials have to comply with in order for consumers to be able to trust the quality of those materials and buy them, which is an important part of having an effective secondary market? There is also an issue around modifying the end of waste rules that I referred to earlier, which again the Commission touches on in its communication, although the detail is not there yet. They are the plans that were announced pursuant to the Commission communication. It has set up different working groups between 2015 and 2017 to flesh out the details of the secondary market rules and how it proposes to modify end of waste rules, but the devil very much is going to be in the details. I think at a high level the short answer is, yes, it is sending the right signals, but a lot of whether or not the package will be a success and trigger resource efficiency across Europe will be in the detail that is being fleshed out over the next two years.
Caroline Lucas
To follow up on that, are you saying that at this point we cannot really judge how well it implements better regulation because that will be in the detail? Is that the point?
Nick Molho
Yes, that is correct. We will be holding an event in Parliament on 23 February with a high-level representative of Commissioner Vella’s cabinet, which we would warmly invite Committee members to attend, precisely to discuss some of that.
Caroline Lucas
Dr Merry, is there anything you wanted to add to that?
Dr Merry
No, that is fine.
Caroline Lucas
The current Commission has said that it is committed to applying the “think small first” principle—in other words, regulating only when it is absolutely necessary. How relevant is such a principle in a mature area of policy like the environment?
Dr Merry
They certainly are not thinking small as far as small and medium-sized enterprises are concerned. I think, again, this is a very small sector, and I apologise for that, but there are some particularly relevant examples. For a project that is run by a small company of, say, fewer than 20 employees, the uptake of the human resource and the time to manage the environmental impact assessment, and then the environmental monitoring process, are going to be disproportionate for a small company. There will be delays due to imposed operational and monitoring procedures. For example, they might say, “You cannot operate during the seal pupping season.” I do not think that has ever been said, but that type of thing might be imposed. That is disproportionate for a small company that has one project. Something that a company in Wales flagged up to me is that they had just put their marine generator in the water and they had to develop monitoring equipment that was nothing to do with their technology. They had to develop monitoring equipment themselves and then they had to prove to the regulators that this was acceptable and agree a procedure for what would happen if the monitor noticed a seal in the area or whatever. If that equipment then malfunctions, although it has nothing to do with their generator, they have to turn the whole lot off. I think this is all very disproportionate for a small company that is trying to do one small demonstration project.
Chair
Can I ask a short supplementary on that? I understand the impacts, particularly on the small and innovative companies that are bringing new investment to the field of marine technology, but you could equally apply it to land-based initiatives as well. One of the challenges with the marine environment is that some of these are pristine and fragile, and also environments where we do not have a lot of experience of monitoring, surveillance, data collection and so on. In fact, many of these companies are pioneering.
Dr Merry
They are. They are indeed.
Chair
What would be the alternative to saying to them, “We need belt and braces”?
Dr Merry
Yes, I agree. As I said at the beginning, it is a new technology and it attracts a lot of attention from the regulators, which is understandable. I believe that they called the marine current turbine “the seal chopper” before it was even installed, the assumption being that seals were going to go through it and get chopped up. In fact, if I can quote the results of this two-year launching programme: “No major impacts on marine mammals detected. Changes in benthic ecology appear to be gradual and in line with natural variation. No evidence of significant change to ambient velocity or flow direction within the Lough.” I guess that had to be proven, and I agree with that. But other regulators are not taking all that on board, so the new one that has gone in in Wales has to redo a lot of that. That is one of the issues that I think needs to be dealt with. The other issue that needs to be dealt with is who pays for this monitoring. If it becomes part of a project, cost state aid rules mean that the developer or the company has to fund 50% of those costs. Therefore, I think it would be very helpful if either the UK Government, or even the EU, paid for such strategic monitoring because they have made marine energy part of the strategic energy technologies. It is strategic for the EU.
Mr Lilley
I will ask these questions if everybody wants them. I do not see why you should have any more view than anybody else, but I simply want to ask whether, in your view, with any of the environmental legislation that is required to be carried out at an EU level, under the principle of subsidiarity—that if something can be done equally well or even not quite as well, but nearly as well, at a member-state level, it should be done—are there any areas where such devolution could occur at a European level? We have already had devolution within the UK to the member countries. Why can’t we have similar devolution within the EU for environmental legislation? Are there any ideas that spring to mind?
Nick Molho
From the extensive feedback we got from our corporate members, that was not a particular issue that came up. On the other hand, what did come up were several areas where EU legislation could be made more efficient, which I touched on earlier, in terms of much better common implementation across different member states, removing some of the inconsistencies in areas such as waste regulations and having a greater focus on holistic thinking when developing particular environmental policies—so, not losing sight of the whole. But what I would say as well is that looking forward there are areas where the EU can have a role that do not necessarily require legislation. For example, one of our major members in the finance sector, Aviva, is very involved in what is called the sustainable stock exchanges initiative. The particular concern that institutional investors such as Aviva have at the moment is that capital markets often tend to operate on the assumption that the natural resources on which our economic activity depends are unlimited when they are not, and that many capital markets also tend to operate on a very short-term basis. What Aviva and other institutional investors would like to see happen is much greater levels of information disclosure on the sustainability impact of investments that are made across different capital markets. The EU can have an important role here in influencing the likes of IOSCO—the International Organisation of Securities Commissions—which is very influential in helping to develop the information disclosure standards that are applied across stock exchanges worldwide. The EU could play a very important role in influencing the standards that would then be applied internationally and would provide more standard and more robust disclosure on sustainability information across international stock markets.
Geraint Davies
Can I ask something slightly different, linked to waste and plastics, and marine wildlife? Do either of you think that the EU should bring in legislation about more biodegradable plastics, given the enormous amount of plastic pollution in our oceans?
Nick Molho
That is not my particular area of expertise, I have to admit, but I would be very happy to try to get more information on that. What I would say is I do think it touches on the live issue of the circular economy package, because that package is looking at all the materials across the piece and at how you can retain the economic value of products throughout their whole lifecycle, and plastics is an important part of that.
Geraint Davies
I know you have written to the Committee on this, haven’t you?
Nick Molho
Yes. We have mentioned it to the Committee—
Geraint Davies
Is it possible—through you, Chair—for you to give us something more comprehensive, because it is something we might want to look at?
Nick Molho
Yes, absolutely. Obviously I can do that. One thing I would encourage the Committee to keep an eye on is the development of the package over the next two years, in particular through the development of product standards under the circular economy package. The Commission will have to be looking on a product-by-product basis at how we can facilitate the disassembly and reuse of the different types of products, and this may mean that for critical components such as plastics, we may be able to find opportunities for reusing them more often, thereby minimising what ultimately ends up at the waste stage. I would recommend that as an area of focus for the Committee.
Geraint Davies
You can write to us.
Chair
We would be happy if you would write to us on that, because it may be something we need to pay attention to.
Nick Molho
Yes, absolutely. I will gather more evidence on that and submit it.
Chair
I can see the clock is approaching 4 pm and the Division bell will be going at any moment. Apologies to Committee members, because there are a couple of other questions we wanted to ask. Could you write to us if there is anything else you think we have not covered that you want to bring to our attention? Specifically, I notice that Peter Aldous was going to ask about your thoughts on whether there are areas of improvement that could be made within the EU approach to environmental policies within the UK going forward. You have mentioned some of the details in terms of the impact on small business, so you clearly have ideas of your own as well.
Dr Merry
Yes, I have a few, and I definitely have one. Most of the environmental directives were brought in before the renewable energy directive, which was 2007. There are conflicts between the two, if you think about the fact that the environmental directives are erecting barriers to our being able to achieve the 2020 targets. I think the environmental directives need to recognise the long-term impacts arising from climate change on habitats and species and renewable energy would, therefore, be a positive impact, so that would be taken into consideration.
Chair
Okay. Brilliant. If there are any other thoughts or any comments, I urge you to write to us. Thank you very much. I have Committee members who are desperate to get all their questions in but I think we are going to have to stop—[Interruption.] Geraint, go on; quickly.
Geraint Davies
The Severn Barrage is a massive energy opportunity—about 5% up to 9%, some people say—for UK energy. Part of the stumbling block of that is new habitat directives related to birds and also impacts on fish. Obviously there is a balance between the different environmental imperatives of renewable energy and habitat preservation, but what, in brief, is your view on that, and indeed Mr Molho’s?
Dr Merry
The REA was involved in the last investigation into the power in the Severn, and our view about barrages has always been that we should look at something smaller first, not the Severn, because once you build the barrage you are stuck with it. Therefore, if you do it on a smaller estuary to start with and you can see the benefits, costs and impacts, and then monitor them, would be the most sensible way forward.
Chair
Very good. Thank you very much. Thank you very much for your time; the anticipation is that the bell will go at any second. Oral evidence: Assessment of EU/UK environmental policy, HC 537 2