EEF today cautiously welcomed the publication of the Energy and Climate Change Committee’s report on consumption emissions. It recognises the need for Government to incorporate consumption-based emissions data into its policy making process to ensure our emissions are not simply offshored. We welcomed the committee’s finding that climate policies based solely on production emissions provide an incomplete picture. They simply do not provide the right investment environment for manufacturing in the UK.

The Energy and Climate Change Committee has called on the Government to be straightforward about the impact that UK consumption is having on the world’s climate. This was the key conclusion of the study into consumption-based emissions reporting published today. In the report, the MPs warned that the UK’s record on cutting greenhouse gases is not as good as DECC figures suggest Carbon dioxide emissions from imported goods consumed in the UK are going up faster than Government is cutting CO2 at home.

However one oddity of the report was an assertion that there is no evidence that electricity-intensive industry investment decisions are being driven by the Government’s climate policy. This stuck out like a sore thumb in the report and has naturally been welcomed by the usual suspects, but I feel the committee have misunderstood the measures announced by the Chancellor in his 2011 Autumn Statement relating to electro-intensive industries.

What the Chancellor has committed to is to help compensate highly electro-intensive companies for UK increases in electricity prices deriving directly from the EU Emissions Trading Scheme and the future Carbon Price Floor. Both taking affect from 2013.  It is entirely unrelated to fluctuations driven by volatility in the fossil fuel market as suggested by the Committee.

It is disappointing that committee did not accept the fact that as of 2013 these unilateral climate and energy policies will put these manufacturers at a real competitive disadvantage to counterparts in Europe and around the world. It is equally disappointing that they said that no evidence was presented on this as research carried out by EEF, and presented to the Select Committee, shows that In 2010 large electricity-intensive UK manufacturers paid approximately 10% more for their power than their German competitors. In both countries, policy was a significant factor – accounting for 16% of the price, rising to 25% in 2013. 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’ and the increasing cost of subsidising renewable energy, from which German energy-intensive industries are protected.

However this point aside, I do agree with the committee that the Government must recognise and understand consumption emissions and ensure that this is fed into policy development, to avoid offshoring the UK’s emissions. And we will continue to call on the Government to carry out a holistic review of green polices ahead of the next Comprehensive Spending Review.

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.