Ceramic Valley may lose ceramic factories without support
In the Autumn Statement more Enterprise Zones were announced, including “Ceramic Valley” in the Stoke and Staffordshire LEP. For our members making construction product materials it should currently be a no-brainer to invest in extra manufacturing capacity, given:
- Cross-party agreement on the need for much more housing; with strong signals of continued robust demand.
- Enhanced Capital Allowances and other benefits available in Ceramic Valley.
- A protected stock of scarce, low process emission Etruria Marl clay, giving an opportunity to build the lowest carbon emission brick, roof tile and clay drainage pipe factories in the world using state of the art energy efficient technology.
But why are these companies finding it very difficult to make the investment case? The main reason is concern about what happens to sites in the EU Emissions Trading Scheme (ETS) after 2020.
All ceramics sectors are currently in receipt of “full carbon leakage protection” in EU ETS. This means that installations receive free allowances at 100% of a “benchmark” of the average emissions of the best 10% of EU installations. The rest of the allowances needed for compliance have to be bought, so incentivising investment in energy efficiency improvements.
After 2021 there won’t be enough carbon allowances to go round for industry. The European Commission proposes a reduced number of sectors receiving full carbon leakage protection, much more challenging “benchmarks” and a potential “haircut” to industry, meaning even the best performers won’t get quite what they need.
The UK Government, however, proposes that “free” allowances should be focused on a handful of sectors, with others receiving a lower “tiered” allowance (only part of their benchmark) “more proportionate to their level of perceived risk”. With this approach there might be less risk of a free allowance “haircut”. Under such an assessment, brick, clay roof tile and clay pipe producers would probably have to buy almost all their carbon allowances after 2020. We think this approach severely underplays the risks and damage to many energy intensive sectors not likely to be in the top-tier.
If tiering were adopted, in 2030 a moderately large world-class, low-carbon brickworks (emitting 40,000 tCO2e / year) would spend up to €3-4 million on carbon using DECC’s projected central carbon price. Costs could rise if the EU decides to further tighten targets after COP21. This makes investment in the UK very challenging, even in Ceramic Valley; and undermines the existing 5,000 UK jobs in ceramics EU ETS installations as the cost of carbon rises rapidly above current profits for many in the early 2020s. Non-EU competitors would not have to cover these costs; and as UK manufacturers compete internationally they are unable to pass on price increases without losing market share to non-EU competitors. This is crazy. Furthermore, in some markets energy intensive sectors compete against each other (e.g. steel, glass, ceramics and cement construction products) so tiering would also lead to the distortion of competition.
Many brickworks / roof tiles factories are currently being built in North Africa, Turkey and the former Soviet Union ready for the post-2020 import onslaught to the EU. The EU ceramic sector is clearly at risk of “carbon leakage”. We need UK Government and the European Commission to guarantee free allocation at 100% of realistic benchmark in ALL energy intensive sectors at risk of carbon leakage.
Before the General Election, prominent Conservatives visited many energy-efficient brick factories, including those “un-mothballed” following the boost in demand due to “Help to Buy” linked to New Build. These included Amber Rudd (DECC), Priti Patel (then HMT), Brandon Lewis (DCLG), Boris Johnson (Mayor of London), David Cameron and George Osborne. But did they listen? Where are they now? After “Boris and the brick” at the 2014 Tory Conference, this blog highlighted investment needs for our industry:
- The need for a sustained high level of housing demand.
- Support for industry’s energy costs from climate change policies.
- A new model linking industry and housing policy
However imports have continued to rise, where previously the UK has been largely self-sufficient:
We want what the unions term a “just transition” to a low carbon economy; “otherwise we will continue to export jobs and import carbon” as we said in a previous Touchstone blog.
To meet the UK housing needs we’ve estimated that 3,000 direct ceramics jobs could be created across the UK, mainly in areas of high unemployment, with £700 million per year added to the economy. We want to work in partnership with Government and the European Commission to come up with sensible regulatory proposals rapidly to ensure our members can invest with confidence in low carbon factories for the future; and realise the full potential in the “Ceramic Valley” and beyond.