§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Kevin Hughes.]
§ 8.4 pm
§ Ms Helen Southworth (Warrington, South)I am grateful for the opportunity to discuss both the effects of Treasury fiscal policy on the recycling of aluminium and concerns that the climate change levy may create a perverse incentive that makes aluminium recycling economically less competitive.
In my constituency, Latchford recycling plant—Europe's first dedicated aluminium can recycling facility—clearly demonstrates that aluminium recycling is one of the success stories of greening business. Commissioned in 1991, with investment of £28 million, it has sufficient capacity to recycle every aluminium can in the United Kingdom. Since 1991, the plant's output has grown by 40 per cent., and it recycles more than 4.5 billion cans a year. It provides employment for 143 people in Warrington.
At the other side of the constituency lies one of the UK's biggest landfill sites, a huge hole in the countryside that consumes waste from a wide area, including greater Manchester. Unsurprisingly, local residents do not like being neighbours to a landfill site. They want people to sort at source and to recycle their waste rather than dump it.
Last year, a local community association charged an entry fee of one aluminium can for recycling at its summer fair, recognising the crucial relationship between aluminium's intrinsic value and the fact that recycling can release that value and reduce landfill waste. Around 4.2 billion aluminium drinks cans were sold in the UK in 1998. If every can used in the UK were recycled, 13.5 million fewer dustbins would go into landfill. We would also save 280,000 tonnes of carbon dioxide.
Aluminium is the most widely used non-ferrous metal in the world. Annual production of primary aluminium amounts to 20 million tonnes, which gives some idea of the size of the global market. It has a wealth of applications from transport to packaging, and from construction to engineering.
Perhaps the most important point is that aluminium enjoys significant environmental advantages in comparison with similar materials. The low weight of aluminium frames used in cars and other vehicles means that the energy required to power them is significantly lower than would be the case for most other metals. A life cycle analysis of aluminium—taking into account the product's environmental impacts from cradle to grave rather than just its manufacturing costs—shows that a vehicle with an aluminium chassis may be 100 kg lighter, meaning a reduction in fuel consumption of 0.6 litres for every 100 km travelled. A tonne of aluminium used in place of steel would save 20 tonnes of carbon dioxide emissions over the lifetime of a car.
That environmental advantage was, no doubt, considered when the Government took their welcome decision to exempt energy use for electrolysis in primary aluminium smelting from the new climate change levy. By its nature, aluminium electrolysis has extremely limited scope for reductions in carbon dioxide emissions. The Government's decision was an important step 92 towards safeguarding the competitiveness of the UK aluminium industry. Given the savings in energy that can result from use of aluminium rather than other metals, that was a wise decision, making environmental and economic sense.
Generations of children know that the way to a "Blue Peter" badge lies in collecting aluminium milk bottle tops. Aluminium is infinitely recyclable, and it therefore has a high intrinsic value. Scrap metal can be refined or re-melted to make new aluminium products with virtually no degradation in quality. It can be recycled again and again, almost limitlessly.
It is important to climate change that the energy required for secondary aluminium production amounts to just 5 per cent. of that needed for the primary product. Primary aluminium consumes 148,000 MJ of electricity per tonne of output. Secondary aluminium uses just 8,100 MJ for the same output. Recycling aluminium is a green activity.
Secondary aluminium production has made enormous strides in the improvement of its energy efficiency. Part of that has been achieved simply by better housekeeping, but the industry has made a large investment in improving efficiency—£170 million over the past nine years. That has included sophisticated melting technology, new furnace design technology, burner design, energy recovery projects and fume arrestment equipment. Many producers have also been audited by bodies such as the energy technology support unit under the energy best practice programme.
The industry plans to invest similar amounts over the next nine years, in order to make further efficiency improvements. It is a green industry with an environmental conscience.
Most important, the industry has invested heavily not only in the infrastructure required to collect material for recycling, but in the educational programmes that encourage consumers to recycle—to change their normal practices. That has been at no cost to the taxpayer. It means that more aluminium is now recycled in Britain than ever before, in an increasingly energy efficient manner.
In 1990, 503,000 tonnes of aluminium were recycled in the UK but, by 1998, as a result of the investment programme, the amount had increased to 858,300 tonnes—a 71 per cent. increase. To produce that amount of aluminium by recycling instead of by producing primary material effectively prevents 4 million tonnes of carbon dioxide emission. That is a significant amount; not least because it is more than the whole UK annual commitment under the Kyoto protocol.
Recycling rates are now as high as 90 per cent. in the transport sector and more than 70 per cent. in the building and construction sector. Even the packaging sector—the most important sector for my constituency—which has innate problems due to the logistics of recovering small quantities of used packaging from millions of households throughout the country, has now built up to a recycling rate of 36 per cent. for used drinks cans. That is the most recycled post-consumer beverage package in the UK.
Higher rates of recycling mean that there is less demand for alumina and thus a correspondingly lower demand for bauxite ore. Recycling means that there is less need for bauxite to be mined in the first place, thus offering environmental protection. Nationally, aluminium 93 packaging recycling is a booming business in its own right. There are now five million recycling transactions every year. There are 50,000 collection groups nationally—20,000 of which are schools and colleges, which are recycling money back into their own operations. Britain has 400 aluminium recycling centres, as well as 120 collection programmes run by community groups. The industry provides jobs—at least 750 new jobs in aluminium packaging, collection and reprocessing in the past decade.
Aluminium scrap has a high value. Collecting aluminium packaging to sell as scrap to secondary aluminium producers provides funds to numerous charities and local community groups—£10 million for local communities and charities every year. In 1998–99, the "Blue Peter" appeal collected 500 tonnes of aluminium, providing funds to build three new schools in Mozambique.
Aluminium foil and can recycling has become a core activity for a growing number of social employment projects that provide skills and personal development training in a workshop setting. There are almost 40 projects providing aluminium recycling services for 70 local authority areas. Many of those are part of the new deal programme; not only do they produce valuable income, they give unemployed young people independence, self-esteem and structured work patterns and the opportunity to gain qualifications that lead to outside employment.
Such projects combine environmental and social benefits and encourage the public to donate aluminium to benefit directly their local communities. It is no exaggeration to say that aluminium recycling proves that there can be a triple bottom line that works simultaneously in the economic, social and environmental spheres. For example, not only would the cans and foil currently recycled each year fill the dome, they would be worth more than £10 million to collectors. Perhaps more disconcertingly, we could still recycle another two domes-full—products worth £25 million are currently going into landfill.
The competitiveness of secondary aluminium producers is finely balanced. The price of scrap metal is high and the infrastructure required to collect it is expensive. The costs of changing public behaviour to promote recycling are largely borne by the industry. Over the past 10 years, more than £40 million has been spent on the marketing, promotion and collection infrastructure in cans and foils alone.
Recycled aluminium competes with primary aluminium in a market in which end prices are determined internationally. Currently, the cost of each is similar. As British primary aluminium electrolysis is made exempt from the climate change levy, recycled aluminium could be at a disadvantage. It is not only potentially anti-competitive, but illogical, to tax recycling as part of a levy whose stated purpose is to encourage energy saving and environmental best practice.
Another key consideration is that scrap might be contaminated with paint, grease, oxides, plastics and so on. The more impurities that are present in the metal being recycled, the more energy is required to re-purify it. As the recycling of scrap metal increases, the greater proportion of impurities in the scrap means that it becomes more expensive to produce, and recycled aluminium becomes less competitive against aluminium produced from bauxite.
94 Companies aiming for stringent targets in energy consumption, under the negotiated agreements, are likely to refuse to process low-grade scraps, with low metal yield and contamination that must be removed—for example, coated foil. Those materials will end up as landfill—as waste. That is the precise opposite, environmentally, of what the climate change levy intends.
The Government's decision to exempt the energy used by the electrolysis of primary aluminium is sensible and welcome; it safeguards the competitiveness of British industry within an overall framework of making the market work for the environment through incentivising energy efficiency. The Government's integrated climate change policies make them a pathfinder in European environmental policy, and we can justly be proud of that.
At the same time, the Government have also shown that environmental policy can be sensitive to the needs of business and to the imperatives of competitiveness. The decision, announced in the pre-Budget statement, to increase the level of rebate to 80 per cent. for those businesses that have made negotiated agreements shows clearly that the Government's approach is environmentally and economically sensible, and was arrived at by listening to responsible industry voices.
However, there is a danger that secondary aluminium will face a blow to its competitiveness by having to pay the climate change levy, while primary aluminium—due to the electrolysis exemption—receives a cost advantage. That situation would upset the fine balance of competitiveness between primary and secondary aluminium.
It would be most inappropriate if the levy were inadvertently to penalise the aluminium recycling sector, which is one of the success stories of greening business. There is a real risk that the climate change levy could make the use of recycled aluminium more costly than that of primary aluminium and thus undermine the levy's environmental intentions.
What might happen if secondary aluminium production is liable for the climate change levy, but electrolysis in primary aluminium smelting is not? Secondary aluminium would rapidly become less competitive than its primary counterpart. Demand for scrap metal in the UK would fall as the cost base increased. Aluminium scrap would then be exported to other countries.
However, Britain would be exporting much more than scrap metal. Jobs in the secondary aluminium industry would also be exported and, given that a company producing 25,000 tonnes of aluminium ingot employs between 70 and 100 people, the number of jobs lost would be substantial. If companies have to relocate to places where energy costs are cheaper, Britain would also be exporting the tax revenues of those companies. The total annual value of the annual production of recycled aluminium from the UK's 60 reprocessing companies is £1.1 billion.
Perhaps most ironically, Britain would be exporting the energy savings that can be made by the secondary aluminium industry. We have already seen how much less energy-intensive secondary aluminium production is than primary aluminium. If Britain inadvertently pushes secondary aluminium abroad because of the unintended effect of an environmental tax, we shall have made a grave error in terms of unemployment and lost a great opportunity 95 for energy savings that would count towards our Kyoto targets and our national contribution to safeguarding our planet's future.
Secondary aluminium is an expanding industry. It fulfils a necessary and positive economic and environmental role. It is high-tech and saves energy, raw materials and waste to landfill. It provides 2,500 jobs and is investing for the future. It is an industry with added social value, allowing innumerable charities and community groups to raise vital funds.
Aluminium recycling is an industry that Britain needs to encourage—and the best possible way to do that is to exempt the industry, and aluminium recycling, from the climate change levy.
§ The Minister for Competitiveness (Mr. Alan Johnson)I congratulate my hon. Friend the Member for Warrington, South (Ms Southworth) on securing the debate and on her thoughtful and well-informed speech. I am aware of the tireless efforts that she has made to ensure that the importance of the United Kingdom aluminium industry and its products are properly recognised by the Government and others, especially through her role as chair of the all-party parliamentary group for the aluminium industry and through her membership of the Select Committee on Trade and Industry. I am also grateful to her for giving me advance notice of the issues that she has just brought to the attention of the House.
The subject of the debate is important, as recycling is one of the key ways in which the metals industry can contribute to the greater goal of sustainable development. The Government are keen to work with the aluminium industry to find efficient ways of recycling this important material. The effective management of waste is central to achieving sustainable development. The Government are committed to achieving substantial increases in recycling rates. Our draft waste strategy, published last year, set out our goals of recycling or composting 25 per cent. of household waste by 2005 and, by the same date, reducing the amount of industrial and commercial waste that we landfill by 15 per cent. as compared with 1998 levels.
Increasing recycling rates will help reduce the environmental impact of using primary raw materials and energy, and disposing of waste. It also offers a competitive opportunity to those businesses that can supply and use recycled materials.
We have in place a number of measures to encourage increased recycling rates. The landfill tax encourages greater diversion of waste from landfill, and the standard rate is going up by £1 a tonne each year until a review in 2004. The producer responsibility initiative means that several industry sectors—including the packaging sector—are taking action to increase re-use, recovery and recycling rates. A Department of Trade and Industry recycling programme announced last October will tackle the market and technical barriers to increasing the use of recycled materials by manufacturing industry. Following that, the DTI and the Department of the Environment, Transport and the Regions are jointly developing proposals for a programme to promote more sustainable waste management and expand the market for secondary raw materials.
96 The Government are grateful to the UK aluminium industry for the commitment that it has shown in its negotiations with DETR on an agreement to reduce energy consumption and emissions of greenhouse gases. I understand that the Aluminium Federation is at the forefront of the energy-intensive sectors involved in these discussions, and that it expects to be one of the first trade associations to sign heads of agreement during the coming weeks. Once a full agreement has been concluded, eligible sites within the sector will be able to benefit from an 80 per cent. discount in the rate of the climate change levy.
It is useful to have my hon. Friend's views on the climate change levy. I emphasise that the Government are seeking to design and implement the levy in a way that maximises the environmental benefits and safeguards competitiveness. We have been trying to work with business as much as possible on the design of the levy, and we have been listening to its views.
My right hon. Friend the Chancellor responded to concerns expressed by business about the impact of the levy on competitiveness by announcing, in his 9 November pre-Budget report, a number of refinements to the original proposals. My right hon. Friend announced a discount of 80 per cent. for those sectors entering energy use agreements with the Government, and reconfirmed the exemption of electricity used in the primary smelting of aluminium. Those are moves to safeguard the competitiveness of energy-intensive sectors of industry exposed to international competitive pressures. However, there was much more in the pre-Budget report announcements for all sectors of business which, in the context of aluminium, means both primary and secondary producers.
All sectors will benefit from the proposed reduction in the main rates of the levy from those published at the time of the 1999 Budget. All sectors will gain from the trebling of Government assistance to business for energy efficiency measures, including the introduction of a new system of enhanced capital allowances. All sectors can lower their levy liabilities by using electricity generated in good-quality heat-and-power plants or from new forms of renewable electricity.
I acknowledge the concerns that my hon. Friend the Member for Warrington, South expressed so eloquently about the impact of the climate change levy on aluminium recycling. I emphasise that we take that issue very seriously. We are working to ensure that the climate change levy should not cut across other environmental policy objectives. We certainly do not want to discourage aluminium recycling, which is one of the success stories of greening business, as my hon. Friend said. The Government are trying to deal with this issue in the context of the negotiated agreements. We are giving careful consideration to proposals on this issue which have been made by the Aluminium Federation.
The question of eligibility for the climate change negotiated agreements has also been raised. Not all businesses engaged in aluminium recycling are eligible. We have said that eligibility will be determined on the basis of regulation under the European Union integrated pollution prevention and control directive. Installations covered by IPPC will be legally identifiable and subject to a regulatory requirement, in terms of having to operate in an energy-efficient manner, to which other non-IPPC sites will not be subject.
97 IPPC captures the main energy-intensive sectors of industry. However, the Chancellor said in his pre-Budget report that the Government would still be prepared to consider suggestions from business for alternative approaches to IPPC, provided those targeted the discount on energy-intensive sectors exposed to international competition. However, any alternative proposals would have to meet certain criteria: they would have to have a clear rationale, provide legal certainty, have administrative simplicity and be consistent with EU state aid rules.
I know that several industry trade associations have made representations on this issue—and that the Aluminium Federation is a party to one proposal, put forward jointly by a group of trade associations. We shall give fair consideration to all other suggestions received—in advance of the forthcoming Budget.
However, I believe that it is important to make clear exactly what is at stake. The Government are offering the 80 per cent. levy to those in negotiated agreements but in return for commitment to challenging energy use targets, which will entail significant investments. The result should be environmental and competitiveness gains.
The Alcan recycling plant, which is in my hon. Friend's constituency, is a key part of the infrastructure in the UK for achieving the recovery and recycling targets in the EC directive on packaging and packaging waste. The directive requires us to recover 50 per cent. of all packaging waste and to recycle 25 per cent. in 2001. They are particularly challenging targets for us in the UK because we have started from a lower base than many of our European neighbours.
We are committed to achieving the targets in the EC directive through the UK's packaging waste regulations. These form part of the UK's producer responsibility initiative, in which a number of sectors are taking action to increase their levels of re-use, recovery and recycling.
In recent years, there has been increasing awareness that market failures may affect the expansion and development of the UK's recycling activities. New and proposed EU legislation on waste, and the review of the waste strategy for England and Wales, have highlighted the issue.
The market development group set up by Department of the Environment, Transport and the Regions in July 1998 has investigated the barriers to expanding the markets for recycled goods. The group's key recommendation was that the identification and development of new markets for recycled goods should be taken forward as a priority measure. In the case of aluminium, though, the group found that the main barriers to increased recycling were the quality and quantity of the metal collected: more metal could be recycled if it could be collected economically. There did not appear to be any failure in demand; the key issue, therefore, was one of supply.
In line with the commitment given in our draft waste strategy for England and Wales, the Government are now considering options for establishing a joint DETR-DTI sustainable waste action programme. The joint programme would promote an integrated approach to materials resource use and waste management.
98 Valuable lessons are being learned from the DTI's own one-year recycling programme, which is being seen as the precursor to the joint programme. The DTI programme expects to attract a number of worthwhile projects designed to create demand for recycled materials by overcoming technical and market barriers.
Local authority waste collection authorities are under a duty to collect household waste, including recyclables. Many provide kerbside facilities to facilitate recycling and therefore encourage the public to recycle. Waste collection authorities are also under a duty to draw up and implement waste recycling plans. The DETR issued guidance in March 1998 on "Preparing and Revising Local Authority Recycling Strategies and Recycling Plans", and asked waste collection authorities to investigate whether their plans needed updating. Most authorities have undertaken the investigation and are revising their recycling plans.
Waste disposal authorities have to provide recycling facilities in the form of civic amenity sites. The provision of such sites encourages residents to recycle. Historically, there has been an operational role for both private sector companies and the public sector in waste disposal.
Waste collection authorities and waste disposal authorities are being encouraged to work together on integrated waste management to promote recycling more effectively through the use of joint waste management strategies. The Government expect waste disposal authorities and waste collection authorities to work as one in the delivery of waste management services—encouraging, for example, joint municipal waste strategies and joint waste management contracts under best value where appropriate.
Co-operation and good communication between collection and disposal authorities, waste planners, the Environment Agency, industries and voluntary organisations provide maximum benefits from an integrated approach to municipal waste management. Local authorities also promote recycling through education—for example by giving presentations to schools. The Government also work with the local authority recycling advisory committee, which has a major influence on recycling, with meetings and activities taking place nationally and regionally.
In summary, aluminium, like the other major non-ferrous metals, is infinitely recyclable and therefore well placed to make a valuable contribution to sustainability and a better quality of life for all. The Government will continue to work closely with the industry to ensure that policy continues to improve the recycling performance of aluminium. The Government are keen to keep up the momentum generated by these events so that the global benefits of continuing to use and reuse these metals are available for future generations.
§ Question put and agreed to.
§ Adjourned accordingly at twenty-six minutes to Nine o'clock.