Green deal still lacks a plan for heavy industry
The Energy Secretary’s statement to the Commons on May 17 2011 made two key points: committing government to a 50% reduction of our CO2 emissions by 2027 and to negotiating a low carbon plan for manufacturing during this year. Government has taken the necessary and welcome decision to follow the independent, science based advice of its Committee on Climate change (CCC). But, because it places the UK well out in front of the rest of the EU, both the Treasury and BIS had blanched at the threat to the UK’s competitiveness.
Whilst the government is evidently sincere in wishing to dig itself out of the hole of its own making, much work remains to be done this year to secure a strategy for the energy intensive industries.
The TUC shared the concerns of manufacturers using high amounts of energy: not just the prospect of huge cuts in CO2 emissions by 2027, 16 years away, but also Osborne’s carbon tax coming down the track next year. The impact of this green tax on the bottom line has seriously vexed the energy intensive industries – steel, ceramics, chemicals. Together they directly employ over 125,000 people and orders of magnitude more in the UK’s supply chain. They are already worried about the cumulative impact of existing climate change policies. Facing up to these concerns, Huhne committed to “take steps to reduce the impact of government policy on the cost of electricity for these businesses.”
The manufacturing plan must address both energy costs, especially for the high energy users, and their needs to invest massively in low carbon technologies. This strategy is now open for negotiation, and will no doubt feature at the next meeting of the Green Economy Council on 7 June 2011.
The first three carbon budgets were set in 2009, following advice from the CCC. The Fourth Carbon Budget – the limit on emissions for the five year period from 2023 to 2027 – has to be set in law by the end of June 2011.
Key points in Huhne’s announcement include:
- As advised by the CCC, net emissions set in law over the Fourth Carbon Budget (2023-2027) period should not exceed 1950 million tonnes of CO2 – a 50% reduction from 1990 levels. The cut is based on our 1990 emissions, in line with the Kyoto Protocol starting point.
- The Committee advised that we should aim to meet the Budget through emissions reductions in the UK, rather than relying on the purchase of international credits from projects abroad. The government rejected this advice, preferring to “keep our carbon trading options open”.
- Also out of line with the Committee’s approach, the government said it would review progress in 2014, to ensure that the UK is aligned with the EU.
The government has now won a breathing space to review policy for the energy intensive industries. In doing so, it has acknowledged in time the essential truth of the joint TUC-Energy Intensive Users Group study (June 2010):
“The cumulative impact of all climate change policies is significant, especially on energy intensive sectors . It also illustrates that if the government continues to simply add one energy or carbon reduction levy after another on to the energy intensive sectors then the risk is that these industries will no longer be able to compete internationally and will simply cease to operate in the UK.”
That was the TUC’s energy costs study. We are now nearing completion of a sister study of the low carbon technology challenges these industries face to be able to continue to make steel, aluminium, chemicals, glass, ceramics, bricks, cement etc, in a low carbon economy. The easy option for the many multinationals involved in these industries across the EU/globally, is to transfer investments and plant from the UK to economies with no, or weaker, climate legislation. The TUC strongly objects to this, not just for the thousands of skilled, well paid, unionised jobs we may lose (in areas of already high unemployment) but because the climate loses, too. The higher carbon emissions are released into the atmosphere by our competitors. Where is the sense in that?
A range of policy options have been submitted for discussion at TUC/EIUG contacts with government, including tax breaks, cash grants and regulatory changes. Reducing the level of taxes and levies ranks high on the list of immediate actions. For a strategic, longer-term view, government needs to develop:
- A carbon capture & storage plan for industry – for those industry clusters whose emissions can, like coal and gas plant, be captured as flue gasses and stored away. This plan to be integrated with CCS infrastructure for energy supply.
- An RD&D programme, including financial support, for energy intensive industries more generally.
- a role for the Green Investment Bank to incentivise investment low-carbon technology demonstration for energy intensive industries.
- A plan for the most effective use of State Aids.
- A UK supply chain and procurement plan to integrate our green energy and manufacturing strategies.