"If we go alone to 30%, you will only have a faster process of de-industrialisation in Europe," the EU’s energy commissioner Günther Oettinger was quoted saying in The Guardian[1] on the 10 February. “We need industry in Europe, we need industry in the UK and industry means CO2 emissions.”

The energy chief’s comments have been a welcome interjection of sense as internal wrangling over EU targets to cut greenhouse gas emissions by 30% - rather than the current ambition of 20% - continues. He warned that a tougher target would force industries to move to Asia.

Figures published at the end of last year certainly add credence to this view. While the EU is on track to meet its Kyoto objectives, as a result of falling emissions from production, the Policy Exchange[2] published research showing that the consumption of greenhouse gases continues to rise. The UK is consuming a third more CO2 than in 1990.

This rise is a result of the greenhouse gas emissions “embedded” in the products and materials we are importing into Europe and the UK from elsewhere in the world where production is not regulated. We are not reducing emissions. We are offshoring them. There really is little sense in striking out to reduce greenhouse gases unless the rest of the world joins us.

So, could Commissioner Oettinger’s comments signal the end of the current debate?

Not if the UK government has anything to do with it. Just yesterday the Energy and Climate Secretary, Chris Huhne, in a speech to the Royal Geographical Society[3], called for “more ambition” by “pushing hard for a higher EU emissions target – a 30% reduction by 2020 – to drive innovation in Europe.

Presumably he knows something we don’t. And he does. The cost to the UK economy. While the Rt Hon Huhne crusades for tougher targets, his department has yet to inform us of the cost to the UK’s fragile economy.  Luckily, the European Commission has been a little more democratic with the truth. It has calculated that a move to the higher target would cost about €81bn (£68.4bn) a year by 2020, or 0.54% of GDP, compared with a cost of €48bn for the 20% goal.

This could be an expensive outsourcing exercise. 

New energy tax threatens to undermine growth agenda

Imagine if the government were to allow teachers and nurses more time off but failed to consider the impact on the students and patients that depend on the services they provide. It wouldn’t happen. Never in a million years. Yet it is with astonishment that the government appears to have designed a new tax on energy without considering how it will impact those who use energy, just those who generate it.

The carbon-floor price sounds fine in principle. We support the idea of a carbon tax and believe it would provide a clear, more consistent and stable incentive to energy users to reduce high-carbon energy and fuel use; to use high-carbon fuels more efficiently; and, to provide electricity generators with a stronger incentive to invest in lower-carbon forms of energy. If designed properly it could be a cost-effective mechanism to meet climate change objectives and ensure security of supply into the 2020s.

However, this support is conditional on countervailing measures to ensure that the overall cost burden on manufacturers does not increase. Indeed it is entirely logical that a carbon tax should lead to a consolidation of the many climate-related costs that fall upon manufacturers. And there is quite a few. As it stands 20 per cent of energy costs are as a result of climate change policy in the UK. By 2020 it is estimated that this will rise to 70 per cent. The carbon floor price will result in a cost increase on manufacturers, equivalent to a tripling of the climate change levy rates.  

Make no bones about it. These unilateral UK-only costs will factor into the investment decisions made by global companies: Whether to put future investment in the UK, or in a region of the world where these costs do not exist.

The Treasury’s accompanying impact assessment in fact is refreshingly honest in its assessment that the floor price will have “a significant impact on a small, but important number of energy sectors in the UK”. It helpfully lists these sectors. But it does not attempt to quantify the impact. Nor does it consider those who are operating on tight profit margins.

But this is only part of the picture. Indeed, we note with concern that this is in addition to the proposals outlined in DECC Electricity Market Reform Consultation which contain measures that aim to achieve a similar outcome that the CPF consultation aims to achieve this time through ‘Contracts for Difference (CfD). In addition to this, we are being asked to contribute to parallel consultation on the CRC energy efficiency scheme and climate change agreements. And this year the rate of climate change levy relief for manufacturers able to enter into a climate change agreement has been reduced from 80per cent down to 65per cent relief - a tax increase on manufacturers of £50 million per annum.

It is all such a mess. It has become impossible comment on individual measures as we are seriously lacking the government’s wider view. At the moment, from where we are sitting, it seems chaotic. Government needs to draw breath and clearly articulate its vision on climate change policy. Seen in parallel with the growth review, the government is sending some very mixed messages.