In a period of difficult economic recovery what the UK needs most is sustainable growth. However if this is to be truly sustainable, we need to both rebalance and decarbonise our economy. The problem is that policies in these two areas are often pulling in different directions:

This may be a natural reaction to our lack of progress, but it needn’t be like this. Our belief is that rebalancing our economy goes hand-in-hand with decarbonising it.

We therefore welcome the government’s announcement this week of a package of measures to help protect the competitiveness of UK energy intensive industries.

The government have recognised that these industries will play an integral role at the heart of the UK’s plans to decarbonise the economy. From the steel in wind turbines, to the chemicals used in energy-saving lighting and solutions in high speed rail, they will provide the building blocks for an energy-efficient and low-carbon economy.

The Chancellor has acknowledged that the current approach to UK climate change policy is increasingly putting their future at risk. Policies that push UK electricity prices above 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 far from the most competitive and additional pressure from unilateral climate policies risk investment in UK. Analysis carried out by EEF shows that in 2010 large electricity-intensive UK manufacturers paid approximately 10% more for their power than their German competitors and that in both countries, policy was a significant factor, accounting for 16% of the price. By 2013, based on existing and planned climate policies, the competitiveness gap is likely to widen to around 15% with the introduction of the UK’s unilateral ‘carbon price floor’. The result of this will be that by 2013 the impact of climate policies could account for about 25% of the price paid by the most electricity-intensive industries in the UK.

This package will help level the playing field for a number of sectors, but also highlights that the UK needs to face up to this issue. Tackling climate change by relentlessly pushing up energy prices for the industries we are reliant on to build a low carbon economy, will be counterproductive.  Not only will it weaken our industrial base and put jobs at risk, it will deliver little or no environmental benefit. Global emissions will be unaffected. Rising demand for energy-intensive products will simply be met from elsewhere as investment switches to more competitive locations. But it doesn’t have to be this way. 

Alongside the energy intensive package the government must also step back and consider a fundamental overhaul of its approach to Green and Growth. The government must address the divide presented in the survey published by EEF, showing that despite the vast majority of manufacturers seeing opportunities in the green economy, only one in eight felt that the UK policy framework supported investment in the UK.

It is clear that in order to meet our ambitious 2050 GHG emissions reduction target of 80%, the UK will need to dramatically decarbonise the energy supply. This should be a major priority for the government. However decarbonisation must be achieved in the most cost effective manner. The government must also support manufacturers to improve energy use and learn lessons from successful schemes designed to incentivise energy efficiency such as Climate Change Agreements (CCA) and simplify the policy landscape.

The UK and EU effort to lead the charge in adopting the toughest targets has gone largely unheeded. The time has therefore come for the government to consider an alternative approach. The government should be encouraging manufacturers to expand production in the UK if it is more carbon efficient for them to do so.  

Finally, with many other countries cherishing similar ambitions, we need to develop an industrial strategy fit for the 21st century which sets out a long term vision for the priorities which will drive investment in manufacturing in the UK. Climate change policies need to be placed in the broader context of issues like innovation policy, tax reform and access to finance. Similarly, these growth policies need to consider the environmental consequences of reform.

Because we have yet to resolve these tensions, we’re left facing a green-growth divide. Reconciling these two priorities will require government to significantly shift its strategy on climate change if we are to meet both objectives of growing our economy in a green and sustainable manner.

With the International Climate Change negotiations in full swing in Durban this week, the government is proudly reporting its progress against its Kyoto target. But does the UK risk not being taken seriously. Does solely reporting on emissions produced in the UK tell the whole tale.

Since 1990, production emissions have fallen, but consumption emissions (emissions embedded in the products and services we consume) have grown.

Giving evidence in front of the Energy and Climate Change Select Committee today, I made the point that the UK’s climate change policy is dominated by mechanisms based on production emissions which do not present a complete picture and can lead to unintended consequences in policy development, such as carbon leakage.

Understanding the UK’s consumption emissions alongside production emissions will provide government with a fuller picture while developing new policies.

The government needs to acknowledge the role of consumption emissions in policy formation in order to better understand the UK’s impact on global emissions.

Manufactures are coming under increased pressure in the UK and the government need to examine their goals of rebalancing the economy and greening the country. We believe that these goals go hand in hand and that manufacturers will play a vital role in delivering the green economy, both through their own contributions and by providing the technologies which will enable others. Government must reassess the policy framework to help investment in the UK.

EEF will publish a report on 13th December which highlights our ambitions for creating a greener and more competitive economy, looking at the barriers to realising this and sets out short- and long-term recommendations that will help to overcome these barriers.

A full recording of the session can be found on the Parliament UK website. Please click here

Today’s Autumn Statement has confirmed that EEF has secured some major policy wins on:

• The Climate Change Levy rebate on electricity for CCA companies will increase to 90% with effect from April 2013.
• A further £100 million will be made available via the Green Investment Bank to finance energy efficiency investments in the commercial and industrial sectors.

In addition:

• The government will provide compensation for the indirect costs of the Carbon Price Floor tax on electro-intensive industries, with effect from 2013. The Treasury will make up to £100 million available for this. Early next year, the government will consult on the precise eligibility criteria – this is likely to be based on companies’ electricity purchases as a percentage of gross value added, with a view of staying within the £100 million budget. This will be subject to EU state aid approval.
• The government will provide compensation for EU ETS indirect emissions pass-through costs in line with the Commission’s eventual state aid guidelines with effect from 1 January 2013.  This is of direct interest to UK steelmakers. In terms of eligibility, this goes further than we had hoped.  The cost will be up to £110 million, which BIS and DECC will jointly find from existing budgets.  The scheme will be administered by BIS.

Today’s announcement is welcomed. It appears that the government has recognised the need to shield globally-competitive industries based in the UK from unilateral cost increases resulting from climate change policy. At EEF we have been urging the government to seek a global response to climate change and have long argued that unilateral action risks just off shoring emissions from energy intensive industries, such as steel, whose products are vital inputs into low-carbon technology supply chains. The fact remains that if the costs of climate policies make UK-produced steel too expensive to compete, people will just buy it from somewhere cheaper, where there is less climate-related constraints on production. For globally-competitive products, a truly global response is required.

Nevertheless, these commitments are firm only to the period relating to the current spending review – so through to March 2015. Government must build on this by sending a signal to companies looking to invest here that it will maintain this package beyond 2015.

We will of course continue to lobby government for a reform of the climate change policy landscape. The next phase of our efforts will be on the back of the publication of our next report on Green and Growth in mid-December which formally launch EEF’s recommendations for reconciling the Government’s two seemingly incompatible priorities of rebalancing the economy and being the greenest government ever. EEF believes that this is a false choice, and our recommendations will set out an alternative route to secure both goals.

The hot and humid weather that followed unusually heavy rain and flooding in Durban the eve before the talks began, and which saw 8 people lose their lives, has not helped delegations to settle into negotiations. Indeed, the temperature is already starting to rise inside the talks.

Noses were firmly put out of joint amid rumours that Canada will jump the Kyoto ship before Christmas, thus avoiding any fines for missing targets. While the media have carried the story, the Canadian government has not yet made a formal statement indicating this is its position. Although Canada’s environment minister Peter Kent hardly quashed rumours when being interviewed by the Washington Post during which he described Kyoto as “in the past” and said signing up to Kyoto was “one of the biggest blunders they have made.”

In honour of this, Greenpeace awarded Canada the first and second “fossil of the day” – a now regular and loud event that attracts a large crowd at the UNFCC talks to honour those deemed to do the most to stall, frustrate and obfuscate. Its second place award was given on account of a comment Peter Kent that: “Emerging and developing countries need to stop “wielding the historical guilt card.” Third place went to the UK because of reports of a government deal to support Canadian tar sands in European fuel supply chains.

Canada’s comments are likely to infuriate China which has called for a second commitment period under Kyoto. Russia and Japan have already confirmed that they will not join a second commitment unless China and the US join. If these countries abstain, any further commitment period agreed would only cover less than 16% of global emissions.

Despite support from Australia, Norway and New Zealand, this also makes the EU’s position tenuous. It has been calling for a roadmap to be agreed in Durban with a deadline for a “comprehensive and legally binding global climate framework that should enter into force no later than 2020”. At a press conference at Durban on the opening day, the EU again confirmed that with this reassurance it would be willing to sign up to a second commitment period under Kyoto. In a press release it outlined two further conditions it says must be met before signing up: The rules surrounding the first commitment period must be tightened and further market mechanisms must be developed. Yesterday, the US distanced itself from the EU’s call during its press briefing at the talks. It just wants the whole issue to go away.

China, India, Brazil and South Africa of course want Kyoto to continue but have previously rejected achieving this by simultaneously starting negotiations on a new agreement. Nevertheless, the EU’s “Kyoto+” approach is gaining some traction amongst least-developed countries including many African countries and Bangladesh, middle-income countries such as Mexico, Costa Rica, Indonesia, Chile and Columbia and small-island states such as the Caribbean islands and Maldives. Once again we are seeing the battle lines being redrawn.

So is Kyoto dying before our eyes? It is too early to tell. Australia’s negotiator said today in the working group meeting on further commitments under the Kyoto Protocol that while governments are making hard-line public statements in closed meetings they are being “pragmatic and show willing to take the middle ground.” There are certainly some signs China may be flexible. South Africa, of course, would love to have a deal agreed under its stewardship. While the odds are still stacked against a deal, Durban still warrants watching.

So if talks about a globally binding agreement are already off the table at Durban, will anything else be achieved?

A likely area of progress will be the Climate Fund and Technology Mechanism.  The Climate Fund aims to provide $100bn per year by 2020.  These funds will be used for climate adaptation and mitigations projects in developing nations.There is however no agreement yet on where this funding should come from.  Obviously the first port of call is developed nations, but how should this divided and what about the role of rapidly developing economies that by 2020 could be considered developed nations?

In the short term the $10bn already pledged at Copenhagen in 2009 is plagued by controversy as developing nations argue that very little of this is additional to funds already provided.

Nonetheless, at Durban, there is hope for real and concrete progress to be made on agreeing a framework and managing the fund in the future.

The other mechanism that is likely to make progress at Durban, once the Climate Fund is made operational, is the Technology Mechanism.  This mechanism, agreed at COP 16 Cancun, will facilitate action on technological developments and transfer.  It will have access to the finance, which will be provided by the Climate Fund, to start projects such as capacity building and National Adaptation Funds.

The hope for progress and support for making these mechanisms operational bodes well for the continuance of the Kyoto mechanisms, even when the commitment period ends in December next year.

Today is the first day of the Conference of the Parties talks in Durban. These two-weeks of intensive international talks, which are attempting to strike a global deal on climate change, are the 17^th to be run by the United Nations Framework Convention on Climate Change. We will be covering the talks daily with live updates on the progress of the talks and what this means for manufacturing in the UK.

In the run up to the talks, many countries put forward their positions.  Russia and Japan stated they would not support second Kyoto Protocol commitment period, which would see new legally-binding reduction targets placed on developed nations; the so-called BASIC countries (Brazil, South Africa, India and China) on the other hand (and maybe not surprisingly) welcomed it.

However, now that the talks have just begun, India, China and Brazil seem to now be on the same page as Russia, Japan, Canada and the US and are calling for any negotiations for a second Kyoto commitment period to be delayed until 2015.  The call for a delay by Japan and Russia is because they feel rapidly developing nations should have more of a role in an agreement and should not be treated as developing nations (and therefore have no commitment target) any longer.  China, India and Brazil however feel there should be ‘reflective phase’ and ‘scientific period’ from 2012-2015 to understand better what targets need to be set. 

Once again we are already starting to see quite a divide in positions – as Europe and developing nations (notably the small island countries) are calling for a new international agreement to be in place by 2015 that includes both developing and rapidly-developing nations.

At EEF we argue that there should only be an agreement that involves all countries in an equitable way.  This means rapidly developing nations need to be considered in a new group, one that recognises their increasing contribution to global emissions.  China is now the world’s biggest emitter.  However, we also understand there is a set window for action; alternative approaches to reducing emissions at the global scale must be explored as this impasse is only getting worse.

This will make for some tense talks over the coming fortnight – one that is not necessarily hopeful.

A report published by the Carbon Disclosure Project (CDP) has highlighted the issue of carbon leakage as a barrier to reducing emissions.  The report found that scope 1 emissions in Europe had fallen from 2010-11, but risen in every other region of the world.

The CDP put this down to ‘significant offshoring’, with them recognising the emissions reduction targets in Europe are creating a competitive disadvantage and pushing production outside of Europe to less regulated countries.

We certainly welcome these findings as this is something that manufacturers have been highlighting for a while.  However, the report then goes on to state that, whilst ambitious emission reduction targets are set in the short term, in the long term companies need to be more ambitious.  The four highest emitting sectors apparently come out the worst with reductions ‘of not even one-half a percent of their cumulative emissions’ to 2030.

I think this shows a lack of understanding of these sectors.  When by the nature of the production processes, it is energy (and therefore carbon) intensive, there is only so far you can in reducing your emissions.  This is where the source of offshoring comes from; when you cap emissions absolutely you push these sectors out to less regulated regions.  Time and time again we have argued these industries are at the heart of the low carbon economy as they are the building blocks for renewable and low carbon technologies.

To take the steel sector as an example of a sector that, at present, will only see incremental efficiency savings until there are new technologies available. Significant research and funding is needed to enable further efficiencies to be made.  This will not happen over night but the steel sector is already taking steps to get there.  The European steel industry’s ultra-low carbon steelmaking (ULCOS) research programme has already invested £66m in the last six years to find ways to halve steel making’s carbon emissions. The cost of delivering these unproven technologies at scales will run into the billions.  Pilots and demonstrations, such as HIsarna (which replaces the traditional blast furnace with a combined melting cyclone), will take time, ten years in this case.  And the UK government has also proved the difficulty in making new technologies viable when trying to establish CCS demonstration projects.

Yes, everyone should be ambitious in reducing emissions but it must be recognised that some industries have already gone as far as they can without a significant shift in energy sources and massive investment in new technologies. At least Ministers in the UK are starting to recognise this.

Today developed nations have been accused of giving up on international climate change negotiations as world leaders admit that a future legally binding agreement will not likely be implemented until 2020, following a proposed 2016 agreement.  Whilst groups such as the Alliance of Small Island States have decried this as shutting the door on abating dangerous climate change, it must not be forgotten that in December 2012, the Kyoto Protocol will not completely die away and any progress made at international talks will have been in vain.

Yes, we may still be a long way off agreeing an international legally binding commitment on reducing GHG emissions, but so many nations do have national targets for reducing their emissions.  Indeed this was the main outcome of the talks in Copenhagen in 2009, where even the United States signed up to the ‘pledge and review’ system they put forward.  In addition the mechanisms put in place through the Kyoto Protocol will remain in place.

These leaders should not be criticised for being transparent about the state of the talks, it would be naïve to continue to believe that Durban will deliver this much needed agreement.  Instead this honesty might help to break some of the deadlock by setting out a clear roadmap (that Europe is calling for) to ensure that a fair and equitable agreement is implemented in the medium term.

In the short term, those who have already signed up to reducing their emissions will continue to do so, while negotiators should focus on agreeing something that all take part in.  This should look at a range of policy levers to reduce carbon emissions, such as carbon intensity targets, rather than the traditional cap and trade.  Carbon intensity targets have the potential to overcome the current impasse on a global agreement by not restricting growth, as many nations feel an absolute cap does.  Other potential policy levers, such as global sector agreements for certain sectors, such as steel or cement, could also deliver significant emissions reductions.

It might not the ambitious dialogue that we have heard in previous talks, but at least this is pragmatic and realistic.

Climate Change Minister Greg Barker last night called for a long term industrial strategy fit for the 21st century. Speaking at the All Party Parliamentary Group for Energy Intensive Industries, the Minister, provided a tantalising glimpse of the governments proposed energy intensive package, expected to be announced in late November. Barker began by stating that the government cannot have a monofocus on carbon targets and that the government recognises the importance of a strong manufacturing sector and the need for an effective transition to a low carbon economy. The government recognise that its not hard to meet UK carbon targets by offshoring our industries, the real challenge is to meet the targets while supporting growth in the sector.

It is clear that Greg Barker and his department have a good understanding of the impact of the UK’s unilateral climate policies on the competitiveness of UK manufactures. They are also committed to working with industry to overcome these barriers. However the minister gave the caveat that the approach will be cumulative, phased and delivered as and when the government can afford it.

The key concern is whether cabinet ministers agree with Greg Barker, the proof will be in the Chancellors announcement on 29th November.