Carbon tax needed to change behaviour

Posted on 21 Jun 2010 by The Manufacturer

Manufacturers have called for fundamental reform of the government’s climate change policy, which is threatening the competitiveness of UK companies.

Members of EEF, the manufacturers’ organisation, criticised climate change policy as ‘chaotic, overcrowded and complicated’, saying it is failing to change behaviour. It recommends introducing a carbon tax to focus business on climate change measures.

The comments came from a new EEF report, Changing the Climate for Manufacturing published ahead of the Budget.

Gareth Stace, EEF’s head of climate & environment policy, said: “Manufacturers have made substantial reductions in emissions. However, there is now increasing evidence that they are struggling under the weight of legislation at a European and national level which has produced a chaotic, over-crowded and complex landscape

“We now need a fresh approach. This will help a vibrant manufacturing sector to make a sustainable contribution to reducing global emissions of greenhouse gases and, continue investing and creating jobs in the UK.”

The report reviews how climate change policy affects Industry ten years on from the introduction of the Climate Change Levy (CCL) and argues that the current climate change policy mix is failing four key tests, which should form the basis of the new approach –

• that incentives must be clear, reliable and transparent
• that regulation should target the right places
• that regulation must be simple and not administratively burdensome
• that measures and initiatives must take clear account of their impact on the competitiveness of businesses subject to regulation

EEF says the first step in a new approach must be an economy-wide carbon tax which is based on energy usage. This would provide certainty for users and encourage investment in the UK’s energy infrastructure. This should begin with reform of the CCL for industrial users. The medium term goal, when political conditions allow, is to extend the reform throughout the economy by applying it to energy generators.

EEF estimates that if a carbon tax were applied to the domestic sector it would generate £1.7bn a year for the Exchequer. This tax should be fixed for 5 years in line with business investment cycles and the government’s carbon budgets.

As well as an economy-wide carbon tax EEF has also called for a review of the role of the Carbon Trust by the National Audit Office. This would have the aim of the refocusing the support the organisation provides to make it more effective and credible for manufacturers.

EEF’s key recommendations include:

1. Reform the CCL so that energy users are taxed according to the carbon content of the energy and fuels they use. This would provide a more consistent, more stable incentive to energy users to reduce high carbon energy and fuel use, to use high carbon fuels more efficiently and, provide electricity generators with a stronger incentive to invest in lower carbon forms of energy.

2. Ensure that any carbon tax is accompanied by voluntary negotiated agreements with industry sectors which provide tax incentives for carbon intensive industry to reduce emissions.

3. For climate change and energy policies, the costs of new regulations and measures should be considered in terms of their cumulative impact on manufacturers. Specific consideration should be given to impacts on energy-intensive manufacturers.

4. The Committee on Climate Change should be tasked with carrying out an assessment of carbon leakage and its possible future effects on UK manufacturing (1). This should be done in conjunction with its annual assessment of the UK’s progress towards meeting carbon budgets.

5. A review of the Carbon Trust’s role by the National Audit Office. Currently, manufacturers report that the advice given by the Trust is too simple, generic or out of line with business investment strategies. The Industrial Energy Efficiency Accelerator is a step in the right direction.

6. Carry out a full review of the effectiveness of the Enhanced Capital Allowance scheme for low carbon products.