Government policies still hurting heavy industry
If major employers like Sheffield Forgemasters and Unifrax at St Helens and Widnes are hurting, as the evidence shows, as a result of government policies introduced during this Parliament, then the government has some way to go to preserve the international competitiveness of our energy intensive industries. In evidence to MPs yesterday, Unifrax, which makes energy saving, high temperature materials, argued that its exclusion from government support through a perverse eligibility test meant that the pass through costs of renewables alone is costing it over £400,000 a year. “Competitors in Germany and France don’t have to worry about these issues.”
Similarly, Sheffield Forgemasters, a global leader in steel casting, with 800 employees in the city, said the available compensation package only covered two thirds of its additional costs. Were the business to be transplanted to Germany, its electricity bill would be £1.5m less on a turnover of some £85m.
According to the company, the danger is that if government keeps piling costs on to energy intensive industries, the UK will lose its capability for defence manufacture, or as part of the supply chain for new nuclear or wind power developments.
In the chemicals industry, the meeting of the All Party Parliamentary Group learned that of the 230 chemical sites in the UK, just 10 qualified for carbon price support, even fewer for the pass through cost of renewable energy. The main business barrier to investing in new low carbon technologies, which is the way to go, “is that we need a competitive cost base to be able to afford investment.”
The TUC has welcomed measures in successive Budgets to offset industry’s climate change costs. But government policies have still raised energy prices for heavy industry by a fifth in 2014 alone. DECC data shows 18% on energy prices of energy intensive industries that are benefiting fully from all the government support (such as steel, chemicals and cement). The figure is forecast to be 14% in 2020.
In excluded sectors, such as ceramics, a gas-intensive industry excluded from benefit, policies have pushed up energy prices by 26%, and set to reach 59% in 2020. For significant numbers of businesses or sectors eligible for some support but not the full package, such as glass and cement, the policy impact is somewhere in the middle of these estimates.
Laura Cohen told the meeting that whole industries like ceramics have been excluded by an inappropriate “sector test” devised by BIS which excludes significant firms with high electricity use in a sector predominantly using gas to for kiln heating. Governments in Germany and Italy compensate over 200 of their ceramics manufacturing sites including businesses in sectors as diverse as bricks and clay roof tiles. One effect has been underinvestment in the UK and a massive rise in import penetration – brick imports trebled to 442,000 tonnes between 2011 and 2103.
In autumn 2014 the government said it was providing £500m a year in relief from the UK’s carbon tax and other policies. It delayed until April 2016 a commitment to provide relief from the indirect cost of renewables in electricity bills.
But since 2013, just 55 companies have received £70m in compensation from BIS for the support, perhaps a third of sums set aside in the past two years.
Yesterday, with the TUC’s support, the Energy Intensives Users Group called for a through review of the government’s eligibility rules, urging the government to relieve industry’s costs of the Renewables Obligation from April 2015, rather than delay this measure for a further year.