More German Lessons for UK industry
The UK’s energy intensive industries are no Google or Starbucks. They pay £13bn in taxes annually, and employ 800,000 in their core businesses and supply chains. Their steel for wind turbine towers or glass for insulation is vital to our low carbon economy. So the TUC welcomes new government support to offset their high energy and carbon costs. “Decarbonisation does not mean de-industrialisation” is the Government’s new mantra. More German Lessons, a new TUC study presented to the current Environmental Audit Committee inquiry, shows how far Germany has advanced in joining industry, energy and climate change policy. But are we doing enough compared with our main competitor, Germany?
4 key tests to compare with Germany
- The German Government’s strategy for industry and energy includes well established compensation payments to ensure it remains a competitive business location. Offsetting industry’s energy costs and carbon taxes supports businesses competing at the international level, including significant backing for energy-intensives.
- How much is support worth? An average of 8bn euros a year across the industrial sector, not just energy intensive industries. Reliefs cover the Ecotax (4.7 bn euros, 2011), renewable energy costs (2.1 bn euros), and free carbon allowances (1.4 bn euros).
- Who benefits? 979 businesses received relief from renewable energy costs, not just energy intensives, but sectors as diverse as baking and rail track. 97,000 companies benefit from the “general discharge” from environmental policies. In 2011, 23,000 companies were given compensation for peak power costs.
- Who pays? German consumers pay over 14 billion euros this year due to the energy levy. The surcharge is expected to cost the average German household with an annual consumption of 1,500 kilowatt-hours around 60 euros additionally next year – 5 euros a month. But the payback is in jobs and skills including for young people in a strong manufacturing economy. The UK speaks of “fuel poverty” when a household spends more than 10% of its income on heating etc. Germans currently only spend 2.5% of their household budgets on electricity on average, with only 0.3% funding green power.
UK: tactics over strategy
Unions and industry have made sustained representations about the cumulative impact of the UK’s energy and climate change policies on the industrial base. The government’s response has been tactical rather than strategic:
- November 2011: government announced a two-year, £210m “compensation package” for some electricity- intensive industries, due to start in April 2013.
- 29 November 2012: Government will “exempt” heavy energy users from the additional costs of renewable energy investments.” A consultation is promised for this longer term support, but no data is available on cost or scope.
- Package 1 comes “from existing departmental budgets” i.e. BIS and DECC. It’s not new money.
- Package 2: the consumer pays. Government “will establish a framework to ensure that the costs to other consumers are minimised.” Consumers will pay for the infrastructure investment driven by the Energy Bill through a consumer levy worth £7.6bn a year in 2020.
Probably most UK energy intensive sectors benefit, but some do not, like ceramics and cement. Neither Google nor Starbucks, the energy intensives pay over £13bn in taxes annually, and employ 800,000 in their core businesses and supply chains. They matter to the low carbon economy.
Unions and industry partners the Energy Intensives Users Group are working for government to adopt a strategic, long term approach comparable to our leading competitor. There are signs of this emerging in BIS. Recently, the Business Secretary Vince Cable said:
“Britain is now leading the way to a low carbon economy and investing in exciting growth sectors of the future. By giving an exemption to industries that use high levels of energy, we are ensuring that the transition to the green economy is a genuine win-win for Britain. So this exemption is a critical reform. It is important that the UK’s energy intensive manufacturing industry remains competitive whilst significant investments are made to the UK’s energy system.”