Fears that carbon budget will cripple industry

Posted on 16 May 2011 by The Manufacturer

Despite lobbying from UK business leaders and EEF, the coalition's ‘green voice’ has won, with a new government commitment to halving carbon emissions at 1990 levels by 2025.

The agreement is legally binding and goes beyond what any other nation has agreed to previously. Britain is now the only country in the world to have set out its plan for carbon emissions targets beyond 2020. The Climate Change Act has already put in place targets to cut carbon emissions by 80% by 2050, but each government has to agree on ‘carbon budgets’ that define how the cuts will be achieved in the short term.

Targets in the budget will require a huge investment in renewable energy such as wind farms and tidal power stations, along with unprecedented investment in new nuclear power stations. Existing coal and gas fired power plants are to be fitted with carbon capture systems in order to reduce emissions further. As well as the above, a drive to get motorists to switch to electric cars and a bigger focus on promoting recycling are to constitute a large part of the government’s initiative to reduce emissions.

Mr Huhne, the energy and climate change secretary pushed the budget through against the wishes of a variety of people inside and outside of government. These included George Osborne, Vince Cable and large companies based in the UK such as Tata Steel, chemicals giant Ineos and Syngenta, the seeds and pesticide group.

Terry Scuoler, EEF chief executive, said: “The UK is already committed to some of the toughest carbon targets. Committing to ploughing a lone furrow without international agreement will damage our economy for little or no environmental benefit.”

He added: “There is little if any appetite across the EU for any further move towards a higher target when there is so much economic uncertainty and government must continue to seek international consensus. It must not press ahead without firm evidence that the rest of Europe is moving towards a higher target.”

While the decision will please environmental groups and green lobbyists, the impact on UK manufacturers is extremely likely to be detrimental. As businesses are exposed to higher input prices, the overarching fear is that they will choose to relocate to other countries in order to remain competitive. This could spell disaster for the recovery, according to EEF.

“We know that a debate is going on in government on this issue and industry will scrutinise any compromise closely. If however, the government simply pushes ahead, then at the very least it must ensure it safeguards the competitiveness of manufacturers and energy intensive users in particular. Failure to do so risks moving the problem of emissions elsewhere at a cost of lost inward investment and economic growth,” said Scuoler.

Measures that have been called for by the EEF to reduce the impact of the new budget include exercising the option to use the Emissions Trading Scheme Directive provision. This allows Member States to compensate energy intensive sectors for the uplift in electricity prices caused by the EU ETS from 2013. EEF wants 100% compensation to be provided to energy-intensive sectors.

The proposals also suggest that revenue gained from green taxation should fund investment in low carbon technologies, including Carbon Capture and Storage. The trade organisation also believes that the Green Investment Bank should be committed to finance industrial energy efficiency projects.

George Archer