Clause 143

Finance Bill – in a Public Bill Committee at 3:45 pm on 12th June 2008.

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Climate Change Levy: Coal Mine Methane No Longer to be Renewable Source

Question proposed, That the clause stand part of the Bill.

Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party

Again, I want to ask some brief questions of the Minister regarding the fact that coal mine methane is no longer being considered renewable under the climate change levy. I understand that the Government are saying that that is because the EU state aid exemption expires in October and the incentive has not had much effect. I want to press the Minister on why the Government feel that that has been ineffective.

A lot of the debate in this House and outside is around the effectiveness of green fiscal measures. When we have measures that the Government say have been ineffective it is useful, helpful and instructive to delve into that ineffectiveness a little more to understand why that has happened. It is important because the exemption was put in place to give financial incentives and assistance to coal mines. Over the past two years, partly owing to changes in energy prices, some old coal mines have re-opened. A good example is Hatfield colliery in South Yorkshire. It is ironic that as coal production and coal mines are being brought back into use the incentive to ensure that the methane created as part of the production process is used for energy generation is being taken away. Can the Minister briefly outline why it was felt that this fiscal measure did not work and whether the Government are considering other ways to tackle the environmental issue of methane in relation to coal production?

Photo of Kitty Ussher Kitty Ussher Economic Secretary, HM Treasury

The hon. Lady’s question gets to the point. We have been slightly mystified ourselves.

May I give a bit of context? In 2003, we applied to the European Commission for state aid approval for an exemption from the climate change levy for electricity generated from coal mine methane. The Commission ruled that the exemption constituted state aid but was approvable for five years under the Community guidelines on state aid for environmental protection.  Coal mine methane is a fossil fuel but is regarded as a renewable source for the purposes of exemption in UK legislation.

The purpose of the exemption was to improve the rate of return on marginal coal mine methane extraction projects, thereby encouraging the capture and generation of electricity from the gas, mitigating emissions of methane into the atmosphere and preserving natural gas reserves.

We continue to recognise that using coal mine methane in electricity generation is beneficial to the environment. However, we have not found any evidence that the existence of the exemption has provided incentives to use the gas to produce electricity above what would have occurred without the exemption. We have worked closely with the industry to explore the case for extending the exemption but the combination of a lack of robust evidence about its need combined with changes to the European Community guidelines on state aid for environmental protection, under which we would obviously be required to apply to extend the exemption, led us to conclude that the UK would not be able to submit an application that would have persuaded the Commission to extend the relief. That is why we have concluded that that no longer depends on the levy exemption for its existence, and is rather a side point to our general efforts in this area.

Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party

Does the Minister have any assessment of the impact on climate change levy receipts as a result of ending the exemption?

Photo of Kitty Ussher Kitty Ussher Economic Secretary, HM Treasury

I do not have such figures to hand, but my presumption is that since we could find no way in which the exemption was having a real effect on the economy, there is no marginal effect on tax receipts either.

Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party

I am grateful to the Minister for her response. She has outlined some of the issues related to this clause, and the points that I wanted to make have been properly aired.

Question put and agreed to.

Clause 143 ordered to stand part of the Bill.

Clause 144 ordered to stand part of the Bill.