Department for Environment, Food & Rural Affairs

Government Response to the Fourth Report of the
House of Commons Agriculture Committee, Session 1999-2000

Environmental Regulation and Farming

Introduction

The Government welcomes this report, and the contribution that it makes to the debate on the proper balance between environmental regulation and support for the farming industry. Since the report appeared, the Government has announced (on 30 March) an Action Plan for Agriculture that provides a package of measures to help the agriculture industry out of the current economic crisis and a longer-term strategy for its future development, while at the same time maintaining the necessary safeguards for the wider environment.

Some of the measures contained in the Action Plan bear directly on points raised by the Committee. In particular, recognising the real concerns over the impact that the early introduction of pollution control would have on the industry, the Government has concluded that it would be appropriate to defer bringing the pig and poultry farming industries into Integrated Pollution Prevention and Control until 2007.

IPPC

Scope

Recommendation (a): We recommend that the Government ascertain the number of farms within the scope of the IPPC Directive as soon as possible. We emphasise that the poultry farm figures may well be only approximate since in 2003 such farms will be reducing their poultry numbers to comply with EU animal welfare regulations, a fact which should be taken into account in arriving at the numbers (paragraph 7).

The Government agrees that it is important to ascertain at an early date how many farms will be subject to IPPC. However, as pig and poultry installations have not hitherto been regulated in this way, the appropriate data is not available. The Ministry of Agriculture, Fisheries and Food collects data on the number of pig and poultry holdings: however a holding is defined differently from an installation. Recent work undertaken by the Environment Agency has estimated that there are 1,400 poultry installations and 435 pig installations which would currently be subject to IPPC. These estimates correlate roughly with those produced by the industry. It is however difficult to predict the exact effect of EU Directive 99/74 which sets down the minimum welfare standards for the keeping of laying hens. It cannot be assumed that producers will reduce the size of their flock rather than rehousing displaced birds. Other factors, including the economic circumstances of the industry may have an effect on these estimates before existing installations are phased into IPPC in 2007.

Recommendation (b): We suggest that the phasing in of agricultural installations should not begin until at least twelve months after the publication of national guidance, based on the BREF notes (paragraph 12).

The BREF note for the pig and poultry sectors should now be available in 2001, as will interim guidance for new or substantially changed installations that, under the provisions of the Directive, will require a permit immediately. The Agency also believes that, provided the momentum generated on developing General Binding Rules (which the Government and the Agency hope will govern the regulation of the majority of the sector) is maintained, draft rules could be prepared by summer 2000. So the sectors should know well in advance of the measures that are likely to be required under IPPC. However, the production of substantive national guidance for this sector may be delayed after completion of the BREF as the Agency will need to concentrate on producing such guidance for sectors which will be phased into IPPC earlier.

Implementation and Timing

Recommendation (d): We recommend that responsibility for all aspects of implementing the IPPC Directive be clarified as a matter of urgency (paragraph 13).

The timetable for phasing existing installations into IPPC will appear in the Pollution Prevention and Control (PPC) Regulations, and a draft of these was made available for consultation on 26 April 2000; formally therefore this is the responsibility of the Minister for the Environment, and his officials in the Department of the Environment, Transport and the Regions in England. The Government is concerned to ensure that IPPC is implemented in a way that ensures the resources of the Environment Agency are deployed in the most effective, efficient and equitable fashion; it relies on the advice of the Agency as to what can reasonably be undertaken with the resources available.

Recommendation (c): There is no evidence of a rush to impose IPPC on farmers in other EU countries and it would be wrong to burden the UK industry with extra regulatory costs now which their EU counterparts will not have to pay for some time, particularly since the year 2003 will be a time of maximum difficulty for the poultry industry because of the reduction in cage bird numbers in that year, a factor which does not seem to have been taken into account (paragraph 12).

Recommendation (e): We recommend that the implementation of the IPPC Directive in intensive farming be delayed until 2006, bearing in mind the need to maintain the competitive position of the UK industry in relation to its competitors in other Member States (paragraph 13).

The Government shares the Committee's view that UK industry should not be burdened with unnecessary costs, and also welcomes the Committee's recognition in their report that some phasing-in is essential. Respondents to the third consultation exercise on IPPC agreed that implementation should be phased to spread the workload of the regulator, and also concurred that the best way of determining this timetable would be to base it on the availability of the BREF notes, on which national sectoral guidance will based. On this basis, it was proposed in August 1999 that, as the BREF for pigs and poultry was due to be completed in 2002, poultry should be phased-in in 2003, and pigs in 2004. This proposal also took account of advice on the probable future economic position of those sectors. The Government understands that pollution control regimes for farming activities are already in place in the Netherlands, Germany and Ireland.

However, having carefully considered the representations made by the sectors, the Committee's recommendations, and taking account of the current state of the industry, the Government announced on 30 March that existing pig and poultry installations would not come into IPPC permitting until 2007. The Directive requires all existing installations to be permitted by 30 October 2007; failure to meet this deadline could result in infraction proceedings being taken by the European Commission. The Government shares the Committee's concern about the volume of work involved in issuing permits to the number of installations in the sector in a short time span, and expects the sector to fully co-operate with the Agency to ensure that this deadline is met.

Administration

Recommendation (f): We recommend that the Environment Agency carefully assess the full costs to farmers and the environmental benefits of excluding any intensive livestock holding from general binding rules with a presumption in favour of applying GBRs across the whole sector. Where individual permits apply, we recommend that they should do so only if the individual himself requests exemption from GBRs, that the permit be based as closely as possible on the appropriate general binding rules, and that for the purposes of issuing and monitoring the permit's conditions, visits to be kept to the absolute minimum necessary to produce rules which meet the needs of the installation (paragraph 15).

The PPC regulations will enable operators with installations in sectors covered by general binding rules to request that a "general binding rules condition" be included in their permit. The Government agrees that the presumption should be in favour of applying general binding rules across the whole of such a sector. Decisions on individual cases are properly a matter for the Agency. There will be instances in which use of GBRs may not be appropriate; for example site specific emission limits or technical measures may be needed if an installation is located next to a site of special scientific interest (SSSI). The IPPC Directive requires geographical location and local environmental conditions to be taken into account when emission limit values, equivalent parameters or technical measures are set, and subsequently the regulator needs the power to decline a request for a general binding rules condition in such circumstances. Operators will have the right of appeal against such a decision. The Government agrees that, in such instances, permit conditions should be based as closely as possible on the appropriate rules.

Recommendation (g): We recommend that the Environment Agency examine the possibility of delegating its responsibility to administer, and inspect compliance with, the IPPC Directive (paragraph 16).

The Government recognises the importance of minimising the disturbance to the industry while achieving the necessary regulation of the activities that give rise to pollution. It believes that the Environment Agency is best placed to undertake this regulation in England and Wales, although it is open to suggestions about other possible regulators who would be able to deliver the same high standard of environmental protection. Consideration is being given to the incorporation of existing industry standards that are independently audited within general binding rules.

Recommendation (h): We recommend that the Government undertake an immediate investigation into how other EU Member States are implementing the IPPC Directive on the ground in order to learn best practice and prevent adverse competitiveness implications (paragraph 16).

The Agency is undertaking a study of how IPPC is being implemented in other member states. The results of a short preliminary investigation suggested that there is currently some uncertainty in a number of other member states as to exactly how IPPC will be implemented.

Charging

Recommendation (j): As a general principle, full economic cost recovery should not be used as an excuse to increase the burden on industry, as perhaps erroneously, appears to be the case at present. Any calculation of full economic cost should be based on the marginal cost of providing the service, disregarding any existing overheads. Should SEPA continue to show a lower charge, it should be invited to offer the service on a UK-wide basis (paragraph 18).

The Government believes that, as a matter of principle, these costs should be recovered from those who are regulated, rather than the taxpayer. The Environment Act 1995 provides for the Environment Agency to recover such costs and expenses as it incurs in carrying out its functions, from the installations that it regulates. The costs that can be recovered are set out in the Treasury's Fees and Charges Guide and include overheads. The Government is, however, concerned to ensure that the charges levied are an accurate reflection of the regulatory effort involved and will not approve any charging scheme for IPPC unless it is content that this is the case. The Government will shortly be undertaking a Financial and Management Performance Review of the Agency which will examine its effectiveness and efficiency in relation to the Government support and charge income that it receives.

The remit of SEPA does not extend to England and Wales. The Government believes that the Environment Agency is best placed to undertake regulation of the pig and poultry sectors in England and Wales, although it is open to suggestions about other possible regulators who would be able to deliver the same high standard of environmental protection.

Recommendation (k): We believe that, as with the consultation with Scotland, a comparison of how IPPC is likely to be implemented in the pig and poultry industries in different member states should have been done much earlier. If, as is likely, the comparison now commissioned by the Environment Agency finds that there are adverse implications for UK competitiveness, we recommend that the Government consider means of alleviating the costs to farmers in order to reduce the burden of regulation (paragraph 19).

The Government believes that it has taken all possible steps to alleviate any adverse competitive implications for UK pig and poultry farmers by deferring implementation of IPPC until 2007, and by encouraging the development of general binding rules for the sector, which will result in a substantial reduction in fees charged. The philosophy of "best available techniques" inherent in IPPC assumes that proper account will be taken of the costs and benefits of the measures to be deployed.

Recommendation (l): We recommend that independent costing be commissioned by the Government of the financial implications of compliance by farmers with IPPC rules and be taken into account in setting Environment Agency charges (paragraph 20).

The costs of applying for a permit are separate from the costs of complying with the conditions in that permit. The charges made by the Agency are based on full cost recovery, in line with the provisions of the Environment Act 1995, and the Treasury's Fees and Charges Guide. If full costs are not recovered, the deficit in support for the Agency would need to be made up through grant in aid, and would ultimately fall to the taxpayer; such an approach is consistent with the "polluter pays" principle. The cost of complying with permit conditions will vary depending on the measures already in place on each individual farm; a well managed farm may incur little extra cost.

Recommendation (i): We welcome the Government's commitment to monitor the Environment Agency's charges and we expect much lower charges to be proposed following the Minister's intervention (paragraph 17).

Following discussions with the Environment Agency about the progress they had made in the development of general binding rules, the Government announced on 30 March that, providing such rules can be agreed for the sector, it expects that charges for permit applications will be less than half those originally proposed by the Agency for its interim charging scheme; they could be as low as a quarter of the level originally proposed for smaller establishments. Subsistence charges should also be substantially reduced, perhaps by up to a half. Such reductions are likely to be carried through to the longer-term charging scheme.

Recommendation (m): As a matter of principle, the Environment Agency must bring forward new interim charges as soon as possible and there must be adequate time allowed for consultation on proposals for longer-term charging before their implementation in April 2001 (paragraph 21).

The interim charging scheme will need to be approved by Treasury, DETR Ministers and the National Assembly for Wales by the time the PPC regulations are in force. The scheme will be made public as soon as it has been approved. The longer-term charging scheme will be based on the experience gained by the Agency in the early operation of IPPC. Given the delay in implementing IPPC it is unlikely that the longer-term scheme will be in place until 2002; there will be full consultation on proposals for the scheme.

Impact

Recommendation (n): We recommend that a baseline of emissions with targets for reductions be made as soon as possible. We also recommend that, as allowed for in the Directive, a full cost-benefit analysis be undertaken of the impact of IPPC in agriculture (paragraph 21).

The Environment Agency has data on the current level of emissions from agricultural installations and has undertaken to publish the reductions that might be achieved through IPPC in the form of success factors; this might best be done when the BAT (= best available techniques) reference documentation for these sectors is available. Article 9(5) of the IPPC Directive enables the costs and benefits of emission monitoring measures to be taken into account when specifying in the permit which measures should be used. Costs and benefits of emission monitoring measures will be taken into account in developing and refining general binding rules, and in the preparation of sectoral guidance. An assessment of the costs and benefits of various pollution control measures is inherent in the determination of BAT for a sector.

Climate Change Levy

Negotiated Agreements

Recommendation (o): We recommend that the Government commission its own research of the cost to business of compliance with a negotiated agreement for reduced energy use under the climate change levy. We further recommend that responsibility for administering the scheme be divested from the trade associations and that targets be set on a sector by sector basis and administered by HM Customs & Excise as they collect the levy. Alternatively, if the Government wishes to use the knowledge of the sector and expertise of the relevant trade association, it should contract with that association to deliver a specific service at a specific price (paragraph 25).

The Government recognises the case for special treatment for energy intensive sectors who face international competition. An 80 per cent discount will be available for those sectors which agree demanding emissions reduction targets. It is the Government's intention to keep the system for such negotiated agreements as straightforward as possible, in order to provide administrative simplicity for business. This can most efficiently be achieved by collective negotiation with trade associations - it would, for example, be impractical for Government to attempt to reach such negotiated agreements with individual firms on a 1:1 basis. The Department of the Environment, Transport and the Regions has responsibility for negotiating these agreements for Government since they have the lead on energy efficiency in Government and expertise in this area.

Competitiveness

Recommendation (p): We recommend that a full assessment be made of the impact of the climate change levy on the competitiveness of the agriculture and horticulture industry (paragraph 26).

The Government's aim in designing the levy is to maximise its environmental benefits while safeguarding the competitiveness of UK business - including agriculture and horticulture. Recognising the unique position of the horticulture industry, Budget 2000 contained a special package of measures to help improve the industry's energy efficiency while protecting its competitiveness. The package comprises :

Carbon emissions and increased imports of horticultural produce

Recommendation (q): We recommend that a full assessment be made of the implications for carbon emissions of decreased horticultural production within the UK and increased transportation of fruit, vegetables, plants and flowers (paragraph 27).

As section (p) above indicates, Budget 2000 contained a special package of support for the horticulture industry, in recognition of its unique position which has been designed to address the suggested problems.

Rebate Schemes

Recommendation (r):We believe that all businesses, irrespective of whether they are subject to the IPPC Directive, should be encouraged to reduce energy use by being able to secure 80% rebates on the climate change levy. The same degree of thought has not gone into agriculture as into other industries and we recommend that consideration be given as to what extent this scheme lends itself to agriculture and whether a special rebate scheme should be developed for the agriculture industry (paragraph 28).

The Government recognises the case for giving special treatment to energy intensive sectors because of their high energy costs and their exposure to international competition. Those energy intensive sectors which enter into agreements to implement all cost-effective energy savings measures and achieve carbon or emissions targets which meet the Government's criteria will qualify for an 80 per discount from the levy rates.

The Government proposed in Budget 99 that the basis for defining eligibility to enter a negotiated agreement should be those sites covered by the EU's Integrated Pollution Prevention and Control (IPPC) Directive, defined legally in the UK as sites with processes listed in part A1 and A2 of the IPPC Regulations. This criterion has a clear rationale. Sites covered by part A1 and A2 of the Regulations will be subject to a regulatory requirement, in terms of having to operate in an energy efficient manner, that other non-IPPC sites are not subjected to.

In the 1999 Pre-Budget Report, the Government announced that it remained willing the consider alternative definitions for eligibility which would target relief at energy intensive sectors exposed to international competition. A number of proposals have been received and the Government has assessed these carefully. However, none of the proposals received to date satisfies all the criteria set out in the Pre-Budget Report - of having a clear rationale, providing legal certainty and administrative simplicity, and being consistent with EU State Aids rules.

The Government does not intend to extend eligibility to a discount to all firms, since that would involve offering lower rates of the levy to firms who are already net gainers from the levy / NIC package, which would be likely to be contrary to EU State Aid rules.

Recommendation (s):The approach adopted to monitor energy reduction should ensure that energy reduction measures already undertaken are not overlooked (paragraph 29).

Those sectors which enter into negotiated agreements will be required to meet carbon or emission targets by implementing "all cost-effective" energy saving measures. Improvements in energy efficiency already made will be taken into account in calculating the baseline projection for each sector, and therefore what might constitute the remaining "all cost effective" energy savings measures.

Recommendation (t) We recommend that allowances are made in the targets set to take account of animal welfare issues (paragraph 29).

As indicated above, those sectors which enter into negotiated agreements will be required to meet carbon or emission targets by implementing "all cost-effective" energy saving measures in their industries. In line with the objectives of the policy, this will help ensure that the negotiated agreements make a significant contribution to reducing greenhouse gas emissions in the UK. Specific operational energy use requirements, including, where appropriate, those related to animal welfare, will be recognised when targets are set.

Recommendation (u): We recommend that the approach of encouraging all sectors to reduce energy consumption is appropriate for horticulture as well but consideration should be given to the role that horticulture plays on consuming CO2 and consequently ameliorating the "net emissions". If it is not possible to secure 80% rebates for all sectors, rebates should be made available for processes which breakdown CO2 and consequently nullify its harmful effects, which will have the practical effect of exempting horticulture.

There would be extensive practical difficulties in attempting to "net off" energy consumption against the CO2 consumption of horticulture, namely the measurement/quantification of CO2 consumption by different forms of plant life and the administrative difficulties associated with handling such data.. This recommendation was made before the budget announcement of the package for horticulture and was aimed at finding some way to exempt entirely or reduce the liability of the horticulture sector to CCL. In line with Lord Marshall's findings, the Government believes that all sectors of the economy have a part to play in meeting our emissions reduction targets and that therefore total exemption is not appropriate for any sector. However, the Government recognises the unique position of the horticulture industry, and Budget 2000 contained a special package of measures to help improve its energy efficiency while protecting its competitiveness (see section (p) above).

Recommendation (v): We recommend the Government produce the definition of "good quality" Combined Heat and Power as soon as is practicably possible, in order that those growers to whom it applies can benefit (paragraph 30).

The proposals for determining 'Good Quality' were outlined in the Combined Heat and Power Quality Assurance programme (CHPQA) consultation paper in January 2000, and comments on the proposals were invited. The Government was pleased to receive over 130 responses to the consultation, many of which were very detailed. The CHPQA is designed to cover all types and sizes of CHP scheme, is being finalised in the light of these responses, and the full Government response will issue in July, based on the many helpful comments received. The aim is to have the programme in place to enable CHP schemes to begin registering in August 2000.

Other Issues

Joined-up Government

Recommendation (w): We are convinced of the need to assess the impact of new legislation in the context of all existing and pending burdens on a particular industry. There seems little evidence of joined-up government in the case of IPPC and the climate change levy and we wish to see the Government learn better practice from this experience (paragraph 32).

The Prime Minister's announcement of an Action Plan for Agriculture on 30 March is a clear indication of the Government's commitment to seeing the needs of, and burdens on, this industry as a whole.

Competitiveness

Recommendation (x): We acknowledge that the Government has a difficult judgement to make in setting the level of regulatory charges. On the one hand, on IPPC for example, it is obliged to achieve full economic cost recovery from the industry. On the other, Ministers accept that they have a responsibility to promote the competitiveness of UK businesses by enabling them to operate as far as possible on a "level playing field" with overseas producers. Clearly, even on the most rigorous definition of costs, these two aims may be in conflict. Where this is the case, we believe that promoting the competitiveness of UK industry should take priority unless the Government can spell out and defend very clear reasons to depart from this principle (paragraph 33).

The Government believes that the Environment Agency should seek to recover such costs and expenses as it incurs in carrying out its functions from those it regulates. At the same time it accepts that it has a responsibility to promote the competitiveness of UK business by creating as much of a "level playing field" with overseas competitors as is possible. However, the current uncertainty in many other member states about exactly how IPPC will be implemented and what charges will be made means that it is difficult to know exactly what the playing field looks like. Reducing Environment Agency charges to reflect any discrepancies that might emerge would mean that the shortfall would have to be made up by the taxpayer: this would contravene the "polluter pays principle". The Government is, however, concerned to ensure that the charges levied under IPPC accurately reflect the amount of regulatory effort involved, and will not approve a charging scheme unless it is content that this is the case.

Special Position of Agriculture

Recommendation (y): We believe that MAFF has a particular role to play in ensuring that measures applied to agriculture are implemented in the most appropriate way and we are disappointed that MAFF has not taken a stronger position on representing the special position of agriculture in developing these policies. We recommend that the Government collectively ensure that all relevant Departments, including MAFF, are fully involved in developing all regulations which impact on the agriculture industry.

As with the development of all Government policies which impact on many sectors MAFF seeks actively to ensure that unnecessary negative effects of policies on agriculture and food are avoided; equally that positive aspects are enhanced. This is evident from, for example, the continuing work to find alternatives to a pesticides tax and the special arrangements for the horticulture sector alone announced on 21 March in relation to the Climate Change Levy.

MAFF has worked particularly closely with DETR in developing implementation arrangements for IPPC. The announcement of the Farming Strategy on 30 March with contributions to a range of measures from DETR as well as MAFF, demonstrates that the Government is fully committed to joining-up policies. However, policies such as that under the IPPC and for climate change levy affect all economic activity across the UK, not just agriculture, and measures have to be tailored to ensure that all sectors play their part in achieving the necessary aims and that fairness and competitiveness is taken into account.

Published 13 July 2000
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