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Climate change policy making UK energy prices uncompetitive

28 October 2011

New analysis published by Engineering Employers' Federation (EEF) shows that energy intensive manufacturers in the UK are paying significantly more than their German competitors for electricity. The analysis also shows that the government's approach to climate change policies is pushing UK energy prices above those in Germany and that the gap is set to widen further in 2013 when it introduces the unilateral Carbon Price Floor.

According to the analysis UK energy prices for energy-intensive manufacturers were approximately 10 per cent higher than Germany in 2010 and will be 15 per cent higher by 2013. Currently, the fact that Germany’s most energy intensive industries receive a 98.5 per cent rebate on the country’s renewable energy levy while their UK equivalents receive no relief is responsible for a large part of the difference in prices.

By 2013, the rising cost of renewable energy subsidies and the Carbon Price Floor will mean that climate change policies will account for almost a quarter of electricity prices for energy-intensive companies in the UK compared with 16 per cent in Germany.

In response, EEF has urged the government to deliver on its commitment to bring forward a concrete package of measures in the Autumn statement to ensure the international competitiveness of and, future investment by energy intensive companies in the UK. Commenting, EEF Chief Executive, Terry Scuoler (pictured), said:

“The Chancellor recently spoke about environmental laws and regulations piling costs on the energy bills of households and companies. Our analysis demonstrates how this is damaging our industrial competitiveness. By 2013 our energy-intensive manufacturers will be paying 15 per cent more than their competitors In Germany.

“As a first step, the government must bring forward a package of measures to compensate those industries most affected by its climate change policies. Failure to do so will send a strongly negative signal to manufacturers who are looking at whether to make their next major investment in the UK."

EEF backed its call by pointing to recent government figures showing that the competitiveness gap is likely o widen further. Climate policies could be adding up to 52 per cent to electricity prices paid by energy intensive industry by 2020 – a figure that could still underestimate the costs to industry.

For example, EEF’s analysis shows that one measure alone- the Carbon Price Floor (CPF) - will cost manufacturing £250m a year when it is introduced in 2013, rising to £1.2bn by 2020. This is equivalent to one third of the sector’s entire spend on training at today’s prices. Government has committed to introduce a package of measures by the autumn.

This is intended to ensure the competitiveness of key energy intensive sectors which its own impact assessment has acknowledged are at risk from the increase in energy prices.

In response EEF has made its own recommendations in four key areas:

1.
Carbon Price Floor - EEF is seeking direct compensation of the pass through costs within energy prices as a result of the CFP from 2013 for the most electro-intensive sectors.

2.
EU Emissions Trading Scheme - The EU ETS Directive allows for Member States to provide compensation to certain sectors from increased energy costs resulting from electricity generators passing on their direct EU ETS costs. EEF is calling on the UK government to exercise this provision for the benefit of these crucial sectors.

3.
Exemption from the proposed Feed in Tariffs Consumer Levy - Looking to the future, government must ensure that new additional unilateral costs, such as the consumer levy to pay for the proposed Feed in Tariffs, do not put manufacturing companies at a disadvantage against their EU and global competitors.

4.
Additional Climate Change Levy Relief - Government has the ability to increase the rate of relief from the Climate Change Levy to sectors within a Climate Change Agreement to at least 90 per cent, without the need for State Aids approval. The government proposed rate of 80 per cent from 2013 falls significantly short of addressing cost increases resulting from the CFP. Even 90 per cent relief doesn’t adequately address this shortfall, but is a measure that government can implement quickly and easily.

EEF also published additional evidence from a survey of manufacturers, which showed whilst they are making great strides over their own investments, there is a growing concern over the impact of government climate change policy on UK competitiveness.

80 per cent of companies have invested in energy efficiency
84 per cent have taken action to reduce emissions, up from 54 per cent in 2009
50 per cent are, or plan to be part of, low carbon supply chains
75 per cent say the cost of environmental policies has risen and will damage competitiveness Only 1 in 8 think current policy will boost investment
50 per cent see better incentives to invest in energy efficiency and low carbon technologies abroad 
 


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