CBI chides Treasury’s “umm-ing and err-ing”
The CBI has found its voice on the green economy. A hard hitting speech from John Cridland challenges Treasury’s “umm-ing and err-ing” about the level of support for wind energy, questions – as we have – the £250m support package for our energy intensive industries (EIIs) compared with competitors, and calls for an expert, independent review of green taxes by the Committee on Climate Change. The CBI’s new study, The colour of growth, says that green and growth go together, arguing that “we cannot afford to lose momentum.”
Other countries have been catching up with great speed. The CBI argues that while the UK has for a long time been seen as a global frontrunner in energy and climate change, many of our competitors are also forging ahead with strong targets and regulatory frameworks combined with explicit low-carbon industrial strategies. They are often backed by significant levels of public spending that the UK is unable – the TUC might say unwilling – to match. Germany has developed a strategic industrial policy around renewable energy generation in order to match its economic and environmental objectives.
We reckon that the energy intensive industries (EIIs) employ about 800,000 in their core businesses and supply chains. The CBI rightly points out that their UK electricity costs are already mid-table at best compared to European competitors. “And in other countries, energy-intensive companies don’t pay mainstream electricity prices. They’re recognised as vulnerable, and are offered help – through tax discounts, policy cost exemptions, and other forms of support.” It’s astonishing considering their economic contribution to GDP, but also a fair warning to government, that the CBI should point to the potential damage to the economy by undermining “vulnerable sectors such as our energy-intensives”.
Cridland has a three-part prescription for green economic growth.
First and foremost, we need to get the European policy framework right. The European Emissions Trading Scheme “should remain the central pillar of European climate policy. But we need to make it effective by bringing it back into line with our aims.” He argues for “clarity on the longer term. We need clear statements from policymakers of what Europe’s emissions goals will look like in 2030 and beyond, and how phase IV of the ETS will implement these goals.” Without this, there is no way that the EU’s carbon price mechanism will act as a driver of green investments.
Second, on domestic policy the single biggest priority is the government’s Electricity Market Reform process. Cridland focuses on a new mechanism called the Contracts for Differences (CfDs). CfDs are long-term contracts which provide revenue certainty to investors in low-carbon generation such as renewables, nuclear and CCS-equipped plant. The question he asked is who will sign the contracts? The government might not like the answer, because he suggests “it could be that the Treasury somehow underpinning the contracts would be better for the economy as a whole.”
And last what counts is “the mindset that should be brought to all green policy-making….Good green policy has to be good industrial policy too. In everything we do, we have to look at how we can maximise the economic gain.” This means capturing the value of supply chains. At the moment, for every offshore wind turbine that goes up in our waters, only one third of the economic value originates in the UK. He might have added, it also means not wrecking established and valuable supply chains that characterise our energy intensive industries (EIIs) – their 160,000 employees in ten core sectors from steel to ceramics support a further 640,000 workers in businesses generating just under £100bn in gross value added to the economy. A strategy for our heavy energy users is integral to good, green industrial policy.