UK Carbon Price Plans will Undermine Industrial Growth

 

Industrial energy users warn that UK plans to act unilaterally in taxing carbon emissions from power generation will render UK electricity supplies increasingly uncompetitive.

The Energy Intensive Users Group (EIUG) represents producers of steel, paper, cement, lime, aluminium, basic inorganic chemicals, glass, ceramics and industrial gases that currently employ some 225,000 workers.  These industries are highly energy efficient but nevertheless consume large quantities of energy, which can account for 20%-70% of their production costs.  They operate in global markets and therefore depend on access to internationally competitive energy supplies to remain in business, yet the products they make are needed to help the government deliver on its plans for a low carbon economy.

EIUG supports the principle of pricing carbon into the power market to encourage investment in nuclear and other forms of secure, low carbon generation.  But the plans outlined in last week’s Budget will see UK energy consumers facing double the carbon costs of our European competitors, adding millions to the cost of manufacturing energy intensive products in this country.  In the absence of measures to mitigate the impact, energy intensive industries will find it harder to attract investment, encouraging production to move to countries where energy costs are more competitive.  The result – ‘carbon leakage’ – does nothing for the global environment and undermines the government’s efforts to encourage industrial growth.

EIUG welcomes confirmation that the 80% Climate Change Levy discount for intensive industries is to be restored, but points out this is a drop in the ocean compared with the impact of the carbon tax and other cost-raising climate measures.  Figures released in the Budget suggest that the uplift in electricity prices as a result of the carbon tax will be around four times the size of the reduction caused by restoring the CCL discount – a difference that will widen further as the tax rises in line with Treasury’s targets for the decade ahead.  As part of its response to Treasury’s recent consultation on Carbon Price Support, EIUG commissioned an update report on the cumulative impact of climate change policies that confirms the scale of the threat to energy intensive industries (see link/s below).

EIUG Chairman Steve Elliott said:

“The products of energy intensive industries, such as materials for solar panels and wind turbines, insulation and electric car components are leading the transition to a low carbon economy.  Forcing the development and manufacture of these products abroad will not help us remove carbon from the lifecycle of products essential to modern life.  This measure also threatens the ability of the industrial customer base to provide demand for the same electricity generators the scheme is incentivising.”

EIUG Director Jeremy Nicholson said:

“The burden of an escalating carbon tax will fall on electricity consumers, making the UK an increasingly unattractive place to site manufacturing businesses.  Government must come clean about the impact of the carbon tax on energy intensive industries and see what can be done in the context of the ongoing Electricity Market Reforms to mitigate the cumulative burden of this and other climate policies.”

The Cumulative Impact of Climate Change Policies on UK Energy Intensive Industries – Update Against New Government Policy:

EIUG Response to Treasury Carbon Price Support Consultation:

EIUG Website