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Energy reforms are mixed bag - EEF

by Gareth Stace, Head of Climate & Environment Policy 16. December 2010 14:35

Today both DECC & HM Treasury published energy market reform, CCL and Carbon Price proposals in two separate consultation documents. As you can see below, our media release sees these proposals as a mixed bag. Whilst the energy market reforms should now provide new nuclear and low carbon investors with a stronger and predictable carbon price, the “Carbon Price Floor” Consultation from Treasury seems to add yet another layer of costs onto UK manufactures. We therefore may see a ready UK market that overseas competitors can take full advantage from:

Energy reforms are mixed bag - EEF

Electricity market reforms to provide certainty and signal to investors but carbon price mechanism to increase costs and threaten industrial competitiveness

EEF, the manufacturers’ organisation has given a mixed response to today’s package of energy reforms.

Whilst it believes the electricity market reforms will provide a more predictable and cost effective approach to supporting low carbon energy, proposals for the carbon price support mechanism will increase the costs to manufacturers and threaten the ability of companies to invest for growth.

Commenting, EEF Director of Policy, Steve Radley, said:

“Today’s reforms are likely to prove counter-productive. On the one hand government has provided a more predictable and cost effective approach to energy policy which should benefit both investors and consumers.

“It has also fired the starting gun for a policy that will prove the right market signal for investment in low carbon power generation to provide long term energy security.

“However, these reforms come at a significant price for UK manufacturers, including those who want to invest in low carbon technologies. The government’s own impact assessment shows the carbon price reforms will damage competitiveness for over a decade but it offers no solutions that will mitigate this.

“Manufacturers will have to bear the costs and complexities of three different types of carbon and energy taxation (1). Government must now address how it plans to address the loss in competitiveness by working with industry to reform other aspects of climate policy such as the Carbon Reduction Commitment and Climate Change Levy.”



Notes to Editors

1.The three types of carbon and energy taxation are:

·         Climate Change Levy

·         Carbon Reduction Commitment

·         Carbon Support Price Mechanism (as proposed)

2. EEF, the manufacturers’ organisation is the representative body for UK manufacturing. The EEF has a growing membership of almost 6,000 companies of all sizes, employing some 900,000 people from every sector of engineering, manufacturing, engineering construction and technology-based industries.

Manufacturers challenge government to clear up carbon confusion

by Gareth Stace, Head of Climate & Environment Policy 22. November 2010 15:59

Ahead of a HM Treasury consultation on carbon price support, that is anticipated in the coming weeks, EEF has set out its position. 

The expected consultation will set out how government intends to reform the Climate Change Levy and possibly introduce a carbon price support mechanism that sits on top of the EU Emissions Trading Scheme cost of carbon, in order to provide a long term price signal to low carbon investors. This mechanism will affect all purchasers of electricity, through the pass through of costs by the generators subject to the mechanism.


Media release – 19 November 2010:

Ahead of a series of major announcements expected on carbon pricing and energy market reform, manufacturers have challenged the government to act in the best interests of both consumers and investors by consolidating the growing tangle of schemes that put a price on carbon emissions.  

Manufacturers were dismayed last month when the government turned the CRC Efficiency Scheme into a £1 billion tax without any warning or consultation of affected parties. In an instant the policy moved from a being a revenue neutral scheme that rewarded investments in energy efficiency to become yet another tax on energy.  

Rationalising the confusing tangle of policies that set different carbon prices for different parts of the economy is essential. Not only will it give would-be investors in the low-carbon economy greater clarity; it will also go some way to helping restore the trust of the thousands of companies on the sharp end of the CRC decision.

There is ample scope to consolidate overlapping schemes like the CRC, the Climate Change Levy and the planned Carbon Price Support Mechanism into a more coherent and effective climate policy.

Commenting, EEF’s Head of Climate and Environment, Gareth Stace, said:

“We are fast reaching a tipping point. The government has a choice to make between creating further confusion or opting for consolidation that will unleash the potential of the low-carbon economy as well as easing the burden on business.

“If we keep adding to the hotchpotch of existing schemes, we will only muddy the waters for investors and make life unnecessarily difficult for the companies shouldering the burden of climate policy.

“The smart option is to take a more strategic approach based creating a transparent, consistent and predictable carbon price. Consolidation is a win-win approach to climate policy – it will encourage more investment in low-carbon technologies and reduce the cost for compliance for hard-pressed businesses.” 

We had the CRC ‘tax take’ now we must ready ourselves for a carbon tax

by Gareth Stace, Head of Climate & Environment Policy 29. October 2010 10:22

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.

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Germany Relaxes energy tax policy in order to “secure jobs”

by Gareth Stace, Head of Climate & Environment Policy 26. October 2010 17:02

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.

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Another report calls for a carbon tax to streamline our complex climate change policy landscape

by Gareth Stace, Head of Climate & Environment Policy 30. July 2010 13:13

Policy Exchange published a report ‘Greener, Cheaper on Tuesday, 27 July. The report highlights that the costs of reducing carbon are too high and more focus must be placed on delivering our global aims, to reduce carbon in the atmosphere, at least cost.

The report argues that it is time for those who take the threat seriously also take the costs seriously. Taking carbon out of the economy will be difficult and expensive, and policies which increase costs for British consumers and British businesses without improving the outcome are extremely unhelpful.

The report echoes many of the points that EEF raised in its report ‘Changing the Climate for Manufacturers’, published 21 June, such as Current policies are complicated, overlap each other and wasteful”. Policy Exchange also states that “a streamlined carbon tax that will be more effective, more efficient and better for Britain”. The main theme of the EEF report was to call for a carbon tax to replace the Climate Change Levy.  Both organisations commented that the CRC Energy Efficiency Scheme is too complex and must be reformed.

Government is certainly listening to these messages, as Economic Secretary to the Treasury, Justine Greening MP was the key note speaker at the launch event and seem to support the main themes of the report. This echoes the feedback that EEF received from its report, that government saw our publication as saying the right things at the right time.

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The EU carbon target – is government thinking rationally?

by Gareth Stace, Head of Climate & Environment Policy 28. July 2010 15:37

Chris Huhne said yesterday, "I am publishing analysis on the impact of energy and climate change policies on both household and business energy bills up to 2020, and will continue to do so on an annual basis". 

This is a piece of welcome news from the Energy Statement that the Secretary of State gave yesterday (27 July 2010). The true cost of policy burdens on manufacturers must be fully understood in order to deliver both a low carbon future and maintain a vibrant manufacturing sector in the UK.

Alongside the announcement, DECC published a full statement that lists no fewer than 32 actions that, as well as the above (action 7), include:

Action 15: In the autumn, the Government will publish proposals to reform the climate change levy in order to provide more certainty and support to the carbon price. Subject to the outcome of that consultation, the Government intends to bring forward relevant legislation in Finance Bill 2011.

Action 16: We are pressing for the EU to move from the current 20% target to a 30% target for GHG emission reductions by 2020.

As for government publishing it proposals to reform the Climate Change Levy (CCL), I have heard very little and suspect that the details of such a plan are still being debated between HMT and DECC. EEF set out its proposals in our recent report ‘Changing the Climate for Manufacturers’, where we called for the CCL to be transformed into a carbon tax, in order to provide certainty, transparency and clarity to both manufacturers and new nuclear investment.

Looking at action 16, I am increasingly worried that the coalition government is walking blindly into adopting unilateral targets. Chris Huhne, along with his French and German counterparts, recently published an article in the FT (15 July 2010) calling for such a move. The rational for unilaterally tightening the EU target is that it “make[s] good business sense” and that “If we stick to a 20 per cent cut, Europe is likely to lose the race to compete in the low-carbon world to countries such as China, Japan or the US – all of which are looking to create a more attractive environment for low-carbon investment”.

I think it should be pointed out that, unlike the EU, China and the US do not have absolute carbon targets and therefore I would ask, why the EU needs to tighten its carbon target, in order not to lost the race [to compete in the low-carbon world] against the two largest global carbon emitters. There doesn’t seem to be a correlation between tough targets and low carbon investment. Therefore something else is driving this investment.

There is a danger that if the EU does tighten its target and thus increase cost to EU industry, that it won’t be the EU industry that supplies the EU with low carbon goods, but the US and China, as they won’t be burdened with the same cost increases that their EU competitors are subjected to.

Government must now step back, take stock of the aim (to limit global temperature to increases to no more than 2oC) and to understand how we can achieve this aim globally in the simplest and cheapest way in order to avoid the dangers we face from climate change.

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