Is £250 million enough to avert carbon leakage?
If I told you that you’d be paying almost double in taxation for an essential business commodity in ten years time – whereas competitors in China and the USA would only be paying slightly more, and those in Japan, Russia and Turkey would be paying the same or even less – you’d be understandably concerned.
For those of you working in industries such as iron and steel, aluminium, cement and certain sectors of chemical production, you probably already know exactly what I’m talking about (and anyone else is likely to correctly guess it’s energy related). I’m specifically referring to figures compiled by the Government’s Department of Business Innovation and Skills (BIS) that show the impact of energy and climate change polices on future energy prices in Britain, compared with ten other countries.
A BIS representative presented this data and discussed the implications with some of our largest industrial customers at our Round Table event last week, the purpose of which was to gather views on the £250-million compensation package soon to be offered to energy-intensive industries. This event – and an online customer survey – will help to inform our response to the current Government consultation on how this package is structured, of which more in a minute.
The challenge for the Government – and indeed all of us as a nation – is finding the right balance between making the transition to a low-carbon economy (our target is to reduce the UK’s carbon emissions to 80% below 1990 levels by 2050) and ensuring we have conditions that support, rather than hinder, our industries.
Energy-intensive industries (EIIs) such as those I’ve detailed employ around 2% of the UK workforce (618,000 people) yet contribute about 4% of the UK’s gross value added (GVA) – or £49-billion a year.* Through their supply chains, these businesses also generate a great deal of indirect value and additional employment. What’s more, they are often located in areas of high unemployment. On many counts, they are industries we cannot do without.
Yet losing them to ‘carbon leakage’ is becoming a very real prospect. Here are some of the comments I heard from participants at our EII Package Consultation Round Table event:
- “We are dismantling kit in Britain and relocating it to Poland.”
- “Capital expenditure will not go into the UK with so much taxation and uncertainty.”
- “We are in danger of losing world-class industries.”
- “We need a manufacturing and industrial policy to sit alongside energy policy.”
Have your say on the compensation package
Of course, the Government is well aware of the impact of introducing higher levels of environmental taxation, especially on EIIs. Which is why within the £250-million compensation package, it is specifically proposing relief of £110 million for the EU Emissions Trading Scheme (ETS) and £100 million for the Carbon Price Floor (CPF) for those industries most affected, with payments starting in the new year.
However, to ensure the money is best directed, an official consultation is inviting input before the closing date of 21 December. Currently, the proposed criteria states that while all applicants must demonstrate that their carbon cost in 2020 will amount to at least 5% of their GVA, only those applying for ETS compensation have to belong to pre-defined ‘vulnerable’ sectors. The CPF pot – perversely the smaller of the two – is being earmarked for a wider audience, where any sector that meets the GVA criteria and can demonstrate high levels of international trade can apply.
We’d therefore welcome your views – and will be representing these to the Government before the consultation deadline. You can take part in our online survey, or contact us directly [email protected]. I’ll be reporting back soon on our progress, and also on the Government’s response to the feedback we – and other interested parties – provide.
Safeguarding these industries is essential to our future prosperity if Britain is not to become, in the eyes of the rest of world, merely a nation of shopkeepers. And perhaps more important than international reputation is making sure we don’t lose some of our key industries to countries with less stringent environmental taxation, simply so they can remain competitive on a global stage.
* Latest data (2008) from BIS