It’s hardly groundbreaking. Research conducted by EEF has revealed that many of the UK’s manufacturers think climate change policy is a burden on their business. You’d be forgiven to think its manufacturers whinging about extra costs and being forced to do something they’d rather not.
Yet a serious, methodical review of the current climate change policy landscape shows that they have a point. The effectiveness of policy must really be judged against four tests. It must create clear, reliable and transparent incentives. It must ensure regulation targets the right places. Regulation must be simple and not administratively burdensome. And it must take clear account of the impact on the competitiveness of those businesses subjected to regulation. Climate change policy currently fails on all of these points.
Manufacturers are subjected to a confusing mix of regulatory sticks and incentives which are failing to address the unique challenges they face. Manufacturers are directly subject to the Climate Change Levy. Some will be regulated by the EU Emissions Trading Scheme (EU ETS) and/or have a Climate Change Agreement (CCA). Many now fall under the Carbon Reduction Commitment Energy Efficiency Scheme (CRC).
The sum of all this policy? Confusion and mixed, muddied incentives. Policy overlaps are frequent and reporting requirements are not harmonised, creating immense complexity and administrative burden. This complexity serves only to confuse the very signals to change behaviour that policies were brought in to stimulate. In addition, policy is generally extremely blunt. It fails to take into account the work already achieved, the technological boundaries of manufacturing processes and the host of other barriers manufacturers face when trying to improve the energy efficiency of their operations. Perhaps most worryingly government has yet to really grasp the cumulative impact of all this policy on the competitiveness and profitability of manufacturers.
In short, our analysis shows that the current direction of travel risks undermining a healthy and vibrant manufacturing base. These are serious concerns at a time when there is a growing recognition that a vibrant manufacturing sector will need to be a linchpin in a healthy British economy. While we recognise that government has its hand tied in addressing European legislation, we are challenging government to rethink the UK measures used to regulate manufacturers in this area.
To start with, we believe that the government should reform the current energy tax – the Climate Change Levy (CCL) into a carbon based tax. A variable tax which was set according to the carbon content of fuels would begin to provide the right price signals to energy suppliers and energy consumers. It would provide a stronger incentive to energy users to reduce high-carbon energy and fuel use, use high-carbon fuels more efficiently and to provide electricity generators with a stronger incentive to invest in lower-carbon forms of energy.
As a first step users of energy currently subject to the CCL should be taxed according to the carbon content of the fuels they use. But the medium-term goal should be to extend the carbon tax throughout the entire economy so all of society shoulders the cost of tackling the threat of climate change – not just industry and business. Government must set in train preparations for this as soon as possible.
Any reform of energy taxation must be accompanied by voluntary negotiated agreements which provide tax relief for industry, like the current Climate Change Agreements (CCA). While CCAs are supported by manufacturers and have proven to deliver significant reductions in carbon dioxide, we believe that these agreements are ripe for further reform. Government must recognise that each manufacturing sector operates differently and that individual, tailored solutions may be required. We want to see government adopt an approach which uses the carrot of tax relief to encourage improvements in energy efficiency – but in the context of what individual manufacturers are rationally able to achieve. We also believe government can go further to use these agreements to streamline other, existing regulation.
Competitiveness concerns must be taken more seriously. While government appears to be taking greater consideration of the competition implication of its decisions, it must go further and at greater speed. In particular, government must routinely consider the cumulative impacts of its policy on manufacturers’ ability to compete and remain profitable. And, finally, we’d like to see a shake-up of the Carbon Trust. Too few manufacturers report that the advice and support that this body provides is hitting the spot. The Carbon Trust must move away from its too-often simplistic 1-2-1 intervention approach and concentrate instead on the common barriers faced by individual manufacturing sectors. Only by getting to the heart of manufacturing processes can the substantial cuts in carbon dioxide that government is seeking be made. These are the messages EEF will be taking to government. It’s time for government to take manufacturers’ concerns more seriously.