Treasury must factor in long term environmental impact of policies

17 November 2016

The Environmental Audit Committee is calling for the Treasury to "green-check" all its decisions after a major investigation into its approach found that it puts short term priorities over long term sustainability – potentially increasing costs to the economy in the future, and harming investor confidence.

Government performance

The Chair Mary Creagh MP, said:

"The Treasury is highly influential and uniquely placed to ensure the whole of Government works to promote sustainability. But we have seen considerable evidence that it fails to do this.
The Treasury tends not to take full account of the long term environmental costs and benefits of decisions which would reduce costs for taxpayers and consumers in the long run.
On the carbon capture and storage competition and zero carbon homes we saw the Treasury riding roughshod over departments, cancelling long-established environmental programmes at short notice with no consultation, costing businesses and the taxpayer tens of millions of pounds. With a week to go until the next Autumn Statement, we hope our inquiry will be a wake-up call to the Treasury."

Priorities

The Treasury, through its control over government spending, taxation policy and regulation is arguably the most important department for ensuring the UK meets its environmental obligations. However, the Treasury is failing adequately to factor in long-term environmental risks into its decisions and is not doing enough to encourage departments to work together on environmental issues – such as air quality, decarbonisation, energy and resource efficiency.

If the Treasury is going to improve its performance and provide greater leadership on environmental sustainability it must:

Ensure Spending Reviews provide strong incentives for collaboration between departments on environmental matters.
Incorporate new evidence on long-term environmental risks and benefits into its frameworks for assessing the value for money of government interventions;
Increase transparency and accountability by providing publically available justifications for its decisions;
Work with other departments whose policies affect the environment to ensure the Government's new industrial strategies promote sustainability.

Case studies:

Treasury decision to cancel CCS funding without notice

Carbon capture and storage is an essential technology because it has the potential to help decarbonise a range of sectors including power, transport and heavy industry. Before the Treasury cancelled a long running CCS 'competition' to award financial support to pilot projects, the Government did not quantify all the costs and benefits of delaying CCS deployment. This meant that the full risks of cancelling the competition were not factored into the decision.

The Treasury's decision will delay the roll out of CCS in the UK and will increase the cost of deploying it in the future. Without CCS, the inquiry found that it could cost an additional £30 billion to meet the 2050 carbon targets. The way the Treasury communicated its decision to industry left businesses in ‘shock', and was described as ‘devastating', potentially undermining the Government's efforts to deploy CCS in the future.

It is vital the Government produces a new strategy for CCS this year. Treasury should work with BEIS to ensure the new strategy is published as part of the carbon reduction plan by the end of the year. Failing to do so will make it more expensive to meet our long-term, legally binding climate change targets.

Treasury decision to scrap zero carbon homes policy

In 2015 the Treasury abolished the zero carbon homes policy. The decision surprised and in some cases angered many in the construction industry – because it had been working towards implementing the policy for over a decade.

There is a risk that costs to the economy and householders will increase in the long-term as a result . New homes will need to be retrofitted to improve their energy efficiency and contribute towards meeting the UK's 2050 carbon targets. The decision harms the development of new markets for innovative energy-saving products, and wastes years of the industry's sunk costs.

Further information

Image: Treasury