The government often makes the case for its climate policies by pointing out that, as well as being essential on environmental grounds, they are in the financial best interests of energy consumers.

The argument goes that weaning ourselves off coal and gas will reduce our exposure to ever more volatile and expensive fossil fuels.

So far, so plausible? Well, it’s certainly one possible scenario. But opinion is divided, with some seeing it as massive gamble on the future of fossil fuel prices.

What’s most worrying for manufacturers is that, according to government analysis published alongside this week's Annual Energy Statement, there will be no upside for them, however fossil fuel prices pan out, for at least the next twenty years.

The table below is an extract from yesterday’s analysis. It shows that the best case scenario for businesses is that the government’s policies will ‘only’ push up their electricity prices by 26% in 2020 and 29% in 2030.

The worst case scenario is truly alarming - policies will push up their by 51% in 2020 and 58% in 2030.

To recap, whatever happens to fossil fuel prices, if they go up or down, government policies will mean that businesses pay substantially more for their electricity.

This sounds less like a gamble, and more like a sure-fire way to place a losing bet.

Surely there must be a better way? A way cut to emissions without consumers being forced to pay such a high price?

EEF believes there is and in the second of our series of ‘Green and Growth’ reports, due to be published on 13 December, we will be setting out our alternative vision. Watch this space.

Is government regulation costing you money and time, or causing you to lose orders? Between 2002 and 2010, the cost to UK business of the annual flow of new regulation more than doubled from £5bn in 2002 to in £11.5bn 2010.

In tough economic times we need to ensure that regulation is kept to a minimum and is as well-designed and sensibly implemented as possible.

The ‘Red Tape Challenge’ (RTC) is an opportunity for business like yours to get involved and start addressing the issue and shape a better business environment. It’s a government initiative that invites businesses to tell them which regulations are not working and how they could be improved.

Manufacturing will get out of this exercise what it puts in. We can see it as a gimmick and sit on the sidelines or get involved and generate ideas.  We will be taken most seriously if we submit a considered and focused body of evidence.

EEF wants to do its bit. Our Chief Executive, Terry Scuoler, is acting as the ‘sector champion’ for manufacturing. In this role he is promoting participation in the RTC and working to ensure that manufacturers’ views are taken seriously.

We are pulling together issues from across our membership and beyond to demonstrate the breadth of regulations weighing down on UK manufacturing. A consolidated body of evidence will help give maximum impact to the industry’s concerns.

If you are a manufacturer whose business is being undermined by regulation, let us know and we will champion the issue on your behalf. Send a description of the issue and the regulation causing it to redtapechallenge@eef.org.uk

Last Friday, the Government published an assessment of the impact of its climate policies on energy prices that will sound alarm bells in industry. The analysis suggests that by 2020 climate policy could be adding up to 52% to the price of electricity paid by energy-intensive manufacturers.

Yet the true impact is uncertain and could be higher still. The analysis is based on a range of unspecified assumptions around things like energy efficiency and the degree to which suppliers will pass on the cost of government policies to consumers. A previous government impact assessment put the impact at up to 70%.

However, one thing is certain. To cut carbon emissions, Britain need’s energy-intensive industries. From steel in wind turbines to chemicals in energy-saving lighting, they provide building blocks for an energy-efficient and low-carbon economy.

Yet the Government’s current approach to climate change policy is increasingly putting their international competitiveness at risk.

Energy-intensive manufacturing comprises a diverse range of processes and business models. As a result, different industries, and companies, face different risks and impacts from policies designed to cut carbon emissions.

The most electro-intensive are the most at risk. Policies that push UK electricity prices above and beyond those of our competitors will undermine their ability to attract mobile investment and compete in international markets.

Industrial electricity prices in the UK are already high. Over the past five years, they have been higher than both the EU and G7 average.

For the largest consumers, the gap has been significant. Since 2006, official statistics show that UK prices have typically been 20-25% higher than the EU-15 average. This gap extends to our major competitors - UK prices are 10-25% higher than those in Germany and 60-75% higher than those in France. 

The situation is set to deteriorate further. Green policies already account for 20% of industrial electricity prices and a series of new unilateral measures are scheduled to be implemented over the next few years.

EEF estimates that one of these measures alone, the ‘Carbon Price Floor’, could increase the price manufacturers pay for their electricity by 10% by 2020.

Tackling climate change by pushing up energy prices for the industries we need to build a low carbon economy is counterproductive.  Not only will it weaken our industrial base and risk jobs, it will deliver little or no environmental benefit. Global emissions will be unaffected. Rising demand for energy-intensive products will be met from elsewhere as investment switches to more competitive parts of the world. 

Government has said it will address the issue and, we only have to look across the Chanel for resolution. Many of our European neighbours are forging ahead in the development and deployment of low-carbon technologies without putting their industrial bases at risk.

Countries like Sweden combine high levels of renewable energy and strong green industrial bases. A critical factor behind this position has been shielding the most energy-intensive industries from the price impact of climate change policy.

A well-designed compensation package can safeguard the competitiveness of energy-intensive industries without undermining our efforts to cut carbon emissions or overburdening taxpayers. Compensation should be targeted at industries most at risk and focused on offsetting costs arising from the highest impact unilateral policy measures.

First, compensation should be targeted at the most electro-intensive industries. These include electric arc furnace steel production and aluminium smelting.

Second, it should be focused on offsetting the cost of those policies which will have the most detrimental impact on competiveness. These include the unilateral Carbon Price Floor, the impact of the next stage of the European Emissions Trading Scheme on electricity prices and, the consumer levy likely to be introduced to fund investment in low-carbon energy

By keeping the scope and scale of compensation tightly focused, a more level playing field for the UK’s energy-intensive manufacturers can be delivered for a relatively modest amount of money.

Exempting the entire iron and steel industry from the Carbon Price Floor would cost about £14m a year when it is introduced in 2013. In the same year, this tax is expected to raise £740m in revenue.

Levelling the playing field for energy-intensive industries, like subsidies for renewable energy, is a down payment on our low carbon future that will reap significant dividends in terms of jobs, green technology and emissions reductions.

Government’s ability to deliver an adequate compensation package for those energy-intensive industries under threat will dictate whether or not we end up with best or worst of both worlds.

Failure would result in uncompetitive prices and reliance on imported technology to cut our emissions.

A successful approach would see competitive energy prices for UK manufacturers and a thriving industrial low-carbon industrial base.

A report by the Committee on Climate Change (CCC) published yesterday sheds important new light on a major policy controversy that’s very rarely broached in public – is pursuing the 2020 renewable target the best way to cut carbon dioxide emissions?

Everyone agrees that we need to cut emissions and that in order to do so we are going to have to get a much higher proportion of our energy from renewable sources than we do today. No controversy there.  

So should the government intervene and decide what our future energy mix will look like? This is what the UK target to source 15% of energy consumption from renewable sources by 2020 effectively does. And make no mistake; it’s a very challenging target which means we will need to quintuple renewable energy production in a decade. This is, or at least should be, more controversial.

There is a wide range of options beyond renewable energy to cut emissions. These include nuclear power, capturing and storing emissions from fossil fuel-based power generation, a plethora of energy efficiency options and travelling more by train and other forms of public transport.

Yet for fear of being unfairly tarnished a climate sceptic or anti-renewables, few dare broach the question of whether we should be putting so many of our eggs in one basket. Perhaps it would be better to have ambitious emission targets (which we do), strong incentives to invest in low-carbon energy (which we do) and let the market select the best mix of technologies?

And this where the CCC report comes in, there is a very good reason why we should be questioning the wisdom of the 2020 renewables target – cost. A key finding of the report is that the majority of renewable energy technologies are likely to remain considerably more expensive than alternatives forms of low-carbon power generation for several decades.

For example, it predicts that in 2020 offshore wind, the technology many are pinning their hopes on delivering the lion’s share of the renewables target, will still be 60% more expensive than new nuclear power stations and, surprisingly, as much as 20% more expensive even than carbon capture and storage. The cost picture for earlier stage technologies like wave and tidal power is even less encouraging.

So should we be pushing so far and so fast with renewable energy? The potential consequences of avoiding the cost issue are significant. We run the risk of piling unnecessary costs on hard-pressed consumers and undermining our competitiveness for no environmental gain.  More dangerously still, we could weaken the widespread support for addressing climate change which currently exists.

The previous government committed the UK to the 2020 renewable energy target without any obvious consideration of the alternatives. The CCC’s report provides the Coalition with the perfect opportunity for a considered reappraisal of its merits.

As if the government didn't have enough on its plate with the economy, there is another area crying out for decisive leadership - energy policy. The UK faces an unprecedented combination of energy challenges over the next decade. 

Chief amongst them are replacing a significant proportion of our energy infrastructure, managing the risks associated with increasing reliance on imported natural gas and making dramatic cuts in carbon emissions.

To meet these challenges we will need hundreds billions of pounds worth of investment in a wide range of infrastructure and technologies, from upgrades to the grid and new gas storage facilities to renewable energy and nuclear power. And government has a crucial role to play - ensuring that the UK is an attractive place to invest and safeguarding the interests of energy consumers, who will ultimately pick up the sizeable bill. 

Unfortunately the energy policy inherited from the last government is no longer fit for purpose. It was forged in an era when the UK was self-sufficient in fossil fuels, had a lavish margin of spare power generation capacity and more benign economic times meant the cost of subsidising renewable energy was subjected to limited scrutiny. A new strategic direction is needed based on setting clearer responsibilities for long-term energy security and a more flexible approach to meeting environmental objectives in which the focus is on cutting emissions rather than setting arbitrary technology-specific targets.  

The government will need to move quickly. The regulator believes that the timescales required to secure finance, mobilise supply chains and deliver infrastructure mean that the energy industry will start making far-reaching and long-lasting investment decisions within the next couple of years. This leaves a very limited window of opportunity to implement new policies and institute market reforms in time to influence its decisions.

Energy is not an esoteric area of interest and importance only to technocrats in their ivory towers. Getting energy policy right matters.   It is integral to most aspects of modern life from transport and communications to the lighting, heating and cooling of our buildings.   It is also important to manufacturing and, by extension, the government's aspiration to rebalance the economy. For many manufacturers considering where to invest as the economy recovers, the security and competitiveness of energy supplies will be an important factor.  

The need for strong and decisive leadership on energy is why EEF published its "Energy Action" yesterday. In this document we set out the key actions we believe the government needs to take, and by when, to get energy policy back on track.  

The government finally published its long awaited "Low Carbon Industrial Strategy" today. This was the document which was supposed to light the green touch paper and set the UK economy on a course for long-term prosperity built on clean new industries. So did it deliver on this promise? The short answer is no., at least not entirely. 

Buried within the 90-page document there are a few new policies of real merit, concrete measures to boost UK industrial capability in areas of major economic opportunity. For example, there is £120m to support a British-based offshore wind industry, a package of measures to improve testing and demonstration facilities for marine renewables, and the establishment of a public-private research centre to strengthen the nuclear industry supply chain. All very promising developments in their own right.

However, what was conspicuous by its abscence, was a long-term vision or sense of priority. The document gives no indication of what the government's priorities are for green development over the next 5-10 years. Instead, if one were to be extremely critical, it reads like a few short-term funding annoucements accompanied by a mass of restatements of existing policy and previous announcements. The strategy should have been bolder and sent a much clearer message to would-be investors about long-term funding priorities.

First, the focus should have been tighter. Rather than setting out nearly a dozen general areas of opportunity, four or five key areas should have been identified. The recession and the state of public finances will mean that resources are scarce in both the public and private sectors for several years to come. So to maximise its impact and attract private investment, government funding will need to tightly focused. The UK is competiting with the rest of the industrialised world to develop low carbon industries and we can't be world beaters in every single one of them.

Second, the strategy should have set out a longer-term vision. Of course, government is not in a position to commit specific sums of money to specifc projects years in advance. But it could, and should, have made clear its intention to sustain support over time for key indsutries. In this regards, the industrial strategy is conspicuously lacking compared to the goverment's plans for reducing carbon emissions and increasing renewable energy. Whether or not one agrees with them, in these policy areas long-term plans (to 2020 and beyond) have been clearly set out and long-term policies put in place to achieve them.

In short, the Low Carbon Industrial exhibits a lack ambition. And the risk is that companies looking to invest in emerging green industries will gravitate towards countries with clearer long-term commitments.          

I attended Government’s “Low Carbon Industrial Strategy Summit” on 6^th March, and couldn’t help but feeling a little underwhelmed. 

A heavy-weight team, fronted by Messers Brown, Mandelson and Miliband, set out a vision that was full of fine words about how the British economy can benefit from the transition to a low carbon economy. For example:

 “Our vision is of a UK economy that is at the heart of the huge, multi-trillion pound global market this will create, where businesses in this country are designing, producing, marketing and deploying the goods and services that will shape a low carbon world.”   

But there was nothing new in terms of policy thinking. No indication of how this compelling vision will be turned into reality. Nevertheless, the plan is still to have a fully-fledged low carbon industrial strategy in place by the end of the summer. So between now and then, someone will need to come up with some ideas. 

One of the biggest questions that will need answering is whether the “new industrial activism for a new green industrial revolution” promised by Lord Mandelson will be a continuation of the current policy approach or something more radical. 

Up to now, policy has focused on setting targets and providing financial incentives to reduce emissions, raise energy efficiency and increase use of renewable energy. Think targets for reducing carbon dioxide emissions, subsidies for renewable energy, and emissions trading. The idea is that if policymakers can craft the right “signals”, then the market will respond and low carbon industries will take off in the UK.     

Will this approach actually deliver on its promise? It is certainly part of the solution. But remember countries around the world have equally ambitious plans for their economies and, in many cases, are devoting considerable resources to achieving them. The goods and services of the much vaunted low carbon economy could quite easily be supplied from overseas. The UK wind energy market is testament to this.  

So government needs to be bolder. Having an industrial strategy should mean having a clear idea of what type of industries you want to encourage, creating an environment in which they can flourish, and using the policy levers available to speed their development.  

One place to start is thinking about what factors need to come together to make the UK the best place to do low carbon business. Things like taxation, skills, infrastructure and access to finance are likely to be major considerations for potential investors.  

Government also needs to look at how its £170bn annual procurement budget can be used more effectively to support the development of low carbon technologies and businesses in the UK. 

EEF looks forward to working with government to help answer these questions.