Manufacturers met with HM Treasury this week to again express concerns that allowance revenues from the CRC Energy Efficiency Scheme, projected to be up to £1 billion a year, will be used to support the public finances rather than recycled to CRC participants. We said in the strongest terms that it sent a worrying signal about how the government intends to engage with the private sector going forward.

We called on Treasury to significantly improve engagement in the run up to the forthcoming major consultation on reform of the Climate Change Levy (CCL) and proposals for a carbon tax, which are due to be published mid November.

A key message to Treasury was that any new carbon tax must be seen in the totality of the many costs pressures on business and should not be seen in isolation.

The changes to CRC present government with a choice at a pivotal moment, as if we see a proposal to introduce an ‘upstream’ carbon tax, levied on the electricity generators, regardless of the price of the EU carbon price, then we may end up with triple taxation on the same tonne of carbon. There will be the CCL levied on the end user, the CRC paid by the end user and then the up stream carbon tax, levied on the electricity generator, with full pass through to the end user.

Government now has the chance to get it right and action its rhetoric of certainty, simplicity and transparency in order to accelerate the move to a low carbon economy, by sending the right signal to the market.

If an upstream carbon tax is to be introduced, then surely now is an ideal time to consider rolling up the CRC carbon tax into this new tax, without increasing the financial burden on manufacturers and to virtually scrap the CRC and take a fresh look again at mandatory reporting to sit alongside this broader carbon tax.

Government must stop tinkering around the edges in a piecemeal fashion and look more strategically, as we are in danger of increasing complexity, not reducing it.

I fear that most of my blog items are telling manufacturers bad news about climate change and environment policy developments. Well this one is very different and it shows that manufacturers are forging ahead in terms of sustainability.

The EEF Future Manufacturing Awards will announce its 2010 regional winners at ceremonies held across the UK next month, with particular recognition for companies successfully seizing the business opportunities presented by the fast growing market for low carbon products and services; and also those actively taking measures to reduce water, electricity and gas usage, and cut waste to landfill. I have seen these entries and there is so much the sector can learn from the examples of innovation.

The Awards have been designed to recognise environmental responsibility, innovation, enterprise and excellence in apprenticeships across today’s manufacturing industry. The Environmental category, in partnership with British Gas, recognises the outstanding measures taken by companies in the sector to preserve the environment and combat climate change.

In this, the second year of the competition, members of the judging panel say the entries have been of an exceptionally high standard. It is incredibly impressive and significant to see such a large volume of manufacturers achieving massive cost savings as a result of their approach to environmental efficiency.

Well done to all those who have entered into the awards programme this year, for having an important story to tell. Find out the winners of the regional ceremonies at the end of November here: www.eef.org.uk/awards

I read in the ENDS Daily yesterday, something that I can’t see happening here. The German government changed its policy on energy taxation in order to “secure jobs”.

Instead of taxing energy intensive sectors, emerging from the worst recession in decades, the coalition government is proposing an increase in tobacco duty.

Plans to introduce a five fold increase of the energy tax were significantly scaled back, along with keeping a reduced rate of the tax to a minimum for the most energy intensive sectors.

Do you think that HM Treasury were thinking about “securing jobs”, when it decided to keep the CRC revenue, rather than recycle it back to businesses and schools, or indeed increase the amount of Climate Change Levy that businesses will pay from April 2012.

When I meet my German, or for that matter, Japanese colleagues, they are astonished how little, compared to their governments, the UK supports industries making primary materials.

Of course, there is a despaired need for global GHG emissions to be cut and cut soon, but governments must acknowledge that in order to achieve this, we need a strong, vibrant and investing manufacturing sector here in the UK.

I think most business caught by the CRC are still in shock that government will, from 2012, take nearly £1bn from them in what can be seen as a carbon tax.

In the absence of recycling revenues, should government be confident that the performance league table, which provides a publically comparative index of participant’s energy efficiency, is a strong enough driver to affect substantial change within the sector.

I believe that these sort of schemes work much better if there is both a ‘carrot and stick’, rather than just the ‘stick’. This heavy stick approach will do little to engage organisations, but more importantly, as I said last Wednesday, seriously damages the trust between manufacturers and government.

Our members are so dismayed at the announcement that we have today written to Gregory Barker to outline our concerns. The letter, backed by many manufacturing companies and manufacturing Trade Associations, will outline that the decision to push through this change to CRC without consultation seriously calls into question the way in which government intends to work with the private sector, as a trusted partner, to tackle the national deficit. The decision also does nothing to simplify an already complex policy landscape and calls into question the government’s desire to deliver a low carbon economy at least cost to industry.

We will hear further details of proposed changes to CRC in the next month or so and I am sure we are all left wandering whether those proposed changes will be as damaging as this one.

So we learnt today from the CSR that government will shortly consult on the reform of the Climate Change Levy. We also learnt that “The CRC Energy Efficiency scheme will be simplified to reduce the burden on businesses, with the first allowance sales for 2011-12 emissions now taking place in 2012 rather than 2011”. This is good news, yes government has been saying for a couple of months now that it wants to make the CRC “More business friendly”.

So it is an understatement therefore that I am completely shocked that on CRC, the CSR also says “Revenues from allowance sales totalling £1 billion a year by 2014-15 will be used to support the public finances, including spending on the environment, rather than recycled to participants.”

How does this measure – that is purely designed to increase revenue to the general Treasury coffers – reduce the burden on businesses and CRC more business friendly? To me it is a tax take to the tune of £1bn in business and very little else.

This government had made it clear that there should be a rebalancing of the economy, with the private sector playing a more central role, whilst reducing the influence of government. It has promised more certainty, more transparency and a more consultative approach.

This measure flies in the face of this brave new world and will damage the trust that government aims to build with manufacturers. Manufacturers have over the last couple of years, put in place significant and costly strategies to comply with the agreed rules of CRC and aim to work with the recycling of revenue regime. They have signed up to the Carbon Trust Standard, at a cost of £15,000 each. They have helped CEOs understand where their organisation will sit in terms of recycling payments and invested in capital equipment on a return on investment basis linked to the CRC rules.

The scheme has started and now government turns the rule book on its head and shatters any strategies organisations have in place. I know that for some manufacturing companies this policy change will cost them over £1m per year.

So what happened since this government said it wanted to achieve emissions reduction targets at least cost. Yes recently a Treasury minister really said this. Is the honeymoon over for believing that government really was going to improve this policy landscape?

I would be very interested in your views. Is this a much needed measure, or a significant mistake that will only serve to limit low carbon investments.

As I mentioned in a previous blog entry, the Environment Agenda is changing, mainly due to a predicted significant cut in its funding from central government. The way it regulates industry is set to take on a different form in the next year or two. With less emphasis on inspections and form filling and a new focus on nailing the bad guys and self compliance for the good guys.

Self compliance may take the form of submitting an ‘Annual Environmental Compliance Statement’ that is signed off by the CEO. The statement could include some minor breaches of your permit, as long as it is shown the company has adequately dealt with the problem(s). There would be fewer, or no, inspector visits and the whole exercise would be kept within the current legal framework and therefore there is no need to amend existing legislation. Effectively, the Agency would leave you alone and trust you to get on with running your business.

It sounds like a ‘no brainer’ surely? But for me, it raises a few important questions.

Unlike the Health & Safety regime, your CEO isn’t as personally liable for managing and signing off the company environmental compliance record. This new approach would put the CEO firmly in the firing line, if the statement was found to be anything but accurate.

Would your CEO therefore be happy to take on this added personal liability?

One solution could be for ‘the Board’ to sign off the Compliance Statement. This would still enable significant ‘buy in’ from those at the top of the company. As this Board level involvement is seen as a really positive aspect of the compliance statement. In that, it brings to the attention of the Board, issues of emissions to land, air and water.

Another problem is that the Statement would be a public document. Also, if the CEO or Board had to sign off the report, then might this require more work for the company as a whole. Surely the Board would require a significant level of assurance, that what they are signing is robust and correct. Of course you could see this from the other side of the coin, that ‘robust and correct’ is no bad thing.

Certainly the Environment Agency needs to show clearly the benefits, such a system would bring to the Regulator and industry alike.

What is your opinion, is this a brave new way forward, or more red tape?

What is the potential for the activities carried out on your site to cause environmental damage? I asked this question to 200 members at a series of workshops to raise awareness of the Environmental Liability Directive (ELD).  The response from members illustrated that it was often difficult to predict the extent of potential damages or the probability of damages arising. 

When questioned as to whether their existing insurance premium would provide cover against environmental damage, it was clear that this was an issue that for the vast majority was not well understood.  What was clear was that existing product liability policies and property policies offered limited environmental cover and was not sufficient to take into consideration the new liabilities introduced as part of ELD.

The European Environmental Liability Directive was transposed into UK law last year as the Environmental Damage Regulations (EDR).  The regulations introduce new forms of remediation which have the potential to impose significant costs on an operator who has caused environmental damage.  In essence those that cause damage to the environment are solely liable for the damage and for repairing damage and must compensate for any interim losses.  The EDR have been invoked against several companies already.

Working in partnership with Chubb Insurance, EEF has produced an Environmental Impairment Insurance (EIL) offering for members which provides protection against environmental risks.  The offering also allows members the scope to select the level of indemnity which best reflects their needs.

All businesses have the ability to cause environmental damage.  Whether you decide to increase your indemnity against such risks is your choice.  However I would strongly recommend that everyone assesses their potential to pollute and to understand the extent of their existing environmental insurance provisions. This is simply not an issue to put off for a rainy day.

Substances which are harmful to human health and the environment are soon to be authorised as part of the European REACH regulation on chemicals.  What this means is that chemicals subject to authorisation (i.e. those on the 'authorisation list’) cannot be used in the EU without prior approval.

Only six substances of very high concern (SVHC) have thus far been identified for authorisation.  This will mean that sunset dates (42-54 months) will be imposed for these SVHC in the New Year after which time there use will not be permitted unless authorisation has been granted.   This means that Musk xylene and MDA, the phthalates DEHP, BBP and DBP and the flame retardant HBCDD cannot bee used in the EU without an authorisation from mid 2014 onwards.

What’s all the fuss you might therefore ask?  Well, authorisation is an expensive business and its fundamental objective is to dissuaded manufacturers from using these chemicals in favour of less harmful substances.  The onus to justify that a chemical substitute does not exist wrests squarely with the user of that substance.

There is also mounting pressure from stakeholder groups for the process of identifying SVHC and requiring authorisations to be beefed up.  A number of non-governmental organizations have developed a SIN List (Substitute It Now!) which consists 356 (updated in October 2009) chemicals it considers SVHC based on the criteria established by REACH.

Substituting a chemical substance as part of a product or formula is not a simple process, particularly if any change would require extensive testing.  There is also concern that manufactures could be forced to jump from one less harmful substance to a another and to another as more chemicals are classed SVHC and possibly subject to authorisation.

There has been a lot of press recently around REACH; however this attention has been focussed primarily on substance registration.  The registration process has its own challenges and potential risks for UK industry for which EEF is actively engaged with UK and European governments.  However, the authorisation of SVHC is likely to get a lot more attention going forward as further chemicals are required to be authorised.  If you would benefit from further information on this aspect of REACH please download the attached paper.

REACH - SVHC.doc (45.50 kb)

I believe that the relationship between the Environment Agency and manufacturers is the best it has ever been, so therefore I am deeply concerned that major changes are afoot at the Regulator. We’re told that it might lose 40 per cent of funding it receives from central government, which could result in a 25 per cent cut in its 13,000 workforce.

We have criticised the Environment Agency in the past for significant variability in the quality of its inspectors, for its keenness to prosecute and then ask questions and its tendency for treating industry as the ‘bad guys’. Things have moved on a lot since then, so much so that a specialist Environment Agency inspector attends the entirety of our Policy Committee meetings. Our members really value the presence of the Regulator there, to hear manufacturers concerns and to work through issues together, rather than adopting an ‘us and them’ approach. The Agency gets to see, at first hand, the problems and barriers industry faces on a day to day basis.

EEF therefore would support any move, by the Agency, to develop national hubs of sector excellence, which can address our historical concerns of variable enforcement across England and Wales.

By and large the Agency is not only, trying to work with sectors to eliminate pollution incidents, but to increase process efficiency. Its NetRegs programme is a shining example of this. A largely underused resource that offers manufacturers and other sectors advice and compliance support on current and forthcoming regulations. A resource that is currently provided free, but more valuable than many paid for services out there.

Of course, the Agency must keep focused on its core remit. For example, the Agency doesn’t need to have a voice in climate change mitigation policy. It doesn’t have the regulatory leverage to deliver on this. However, it is central to government policy on climate change adaptation and climate change regulation compliance.

If this government body is not focused, our concern is that vital resources will be redirected from essential parts of the Agency at a time of increasing financial pressure. The Agency is already stretched and needs to retain its focus.

This message is also true for any proposals that the EA puts forward on developing a monitoring and reporting system that aims to measure the resource efficiency of manufacturing sites. My first reaction on hearing this, was ‘apples and pears’, how can a useful measure be calculated and reasonably reflect a manufactures’ process. Even if it could be done, why is it needed, what purpose would it achieve?

Although relationships have improved, we will of course be watching the Agency closely in the coming months to ensure it uses its new Civil Sanctions responsibly.

In the current ‘Bonfire of the Quangos’, government should not make a rash decision and throw the baby out with the bath water. The Environment Agency is doing a good job, within the limited resources it currently has.