Bring industry back home
In the UK, we import more carbon than we produce, due to the energy embedded in imports of everything from food and smart phones to wind turbines. It has boosted the UK’s carbon footprint by 10% since 1993, as UK manufacturing “hollowed out”. Government support for energy-intensive industries like steel and ceramics should underpin their UK operations and competitiveness risks up to 2020, according to the Committee on Climate Change’s (CCC) study: Reducing the UK’s carbon footprint and managing competitiveness risks. Yet these two sides of the UK’s carbon footprint – imported and home produced carbon emissions – point to a new climate-aware industrial policy, that both targets high carbon import substitutes, and builds a long term framework for our energy intensive industries so they stay, and grow, here.
The Climate Committee takes a close look at the competitiveness risks facing our heavy industry in the transition to a low carbon economy. Are they overburdened with green taxes? It estimates that UK carbon taxes make a £400m hit on profits for energy intensive industries. This, it suggests, is roughly balanced by the government’s complex compensation package now under discussion with industry and trade unions. Since just £250m of the package is on the table, it’s short term to 2015, with no costed commitment to extend it to 2020, and industries are missing, this package is arguably well short of what’s needed. It’s far from a done deal, and not comprehensive, unlike, say, the £6.8bn German exemptions for industry. And UK base electricity prices are higher than our competitors.
Manufacturing industry accounted for 164 million tonnes of CO2, or 36% of UK CO2 emissions, half of it from the energy intensives. But UK industry has become increasingly carbon efficient per unit of output, as the falling line shows:
What also counts from an investor standpoint is what the opposition is doing. The CCC provides some insights: Germany funds industry with £6.8bn relief from energy costs per year, similar exemptions are made in other EU states like The Netherlands, and there’s £2bn a year in Australia.
As the UK has shifted from manufacture to banking, we are now one of the world’s largest net importers of emissions, with a carbon footprint that is around 80% larger than its production emissions. It’s perverse to import wind turbines or electric vehicles rather make them here. There’s a powerful new argument in this study for regrowing UK manufacturing, building supply chain and procurement policies for the massive £200bn due to be invested in energy infrastructure by 2020. This will cut both our production and consumption carbon emissions.
The study shows that unions and industry have been right to argue for government support for heavy industries. Steel, cement, glass, paper, ceramics, chemicals and others are the bedrock of UK manufacture. They provide the fundamental inputs for our low carbon economy. What they now need is a long term and sustained industrial strategy.