The European Commission has this week published its Green Paper on a 2030 framework for climate and energy policies, launching the debate on a package of measures for 2030, a kin to the 20:20:20 package agreed more than five years ago.

We recognise and support the need for a 2030 carbon emissions target for Europe; this is not surprising as we support the UK’s longer term goal, through the climate change act, to reduce emissions by 2050, which staging posts along the way. However, this draws out two distinct points; should Europe’s timeframe not be much longer than simply a 2030 package. Then is a more focused emissions reduction target, the best way of achieving this 2030 and 2050 goal, rather than other conflicting targets?

In terms of the focus on the 2030 timeframe, we must be mindful that although it seems a long way off, even to 2050 represents only one or two investment cycles for some sectors. If these sectors are to meet the significant challenge of decarbonizing, immature technologies and technical solutions must be developed, demonstrated and made commercially available. The endeavor for technological innovation and break-through technologies is at a critical juncture, and a focus on 2030 may be too short for many sectors.

On the second point, it is clear that many in the Commission and indeed Connie Hedegaard herself will be pushing for another renewables target; we simply do not support this. Policies must be designed, which aim to provide the outcome and not prescribe the route. A strong decarbonisation target for Europe will be sufficient to provide the incentive to invest in the most cost effective decarbonisation strategy for each Member State and assist the transition from high carbon, through to low carbon on to no carbon.

The paper also highlights the option for a new energy saving target in the guise of an energy efficiency target, but again we have our reservations. Although the paper does suggest that this could be a relative target, matched to GDP, policy makers should be mindful of overestimating the benefits of energy efficiency by conflating it with energy reduction. Raising energy efficiency is an important policy objective which can help reduce the pressure that rising energy prices place on business competitiveness. However, there is little or no historical evidence to suggest that increasing energy efficiency will significantly reduce energy consumption.

Arguably, the reverse, that improvements in efficiency will stimulate demand for energy, is more likely. Improving efficiency makes using energy less expensive and encourages much needed economic growth, both of which tend to encourage energy consumption.

The paper also asks for views on the current policies, including EU Emissions Trading System. While many may agree that EU ETS is broken, views are divided on what the fix needs to be. Our view is that the significant structural problems with the EU ETS are best fixed in a full review that looks to Phase IV (post 2020), rather than short term fixes. A robust, global means of pricing carbon would be of significant benefit; however the EU ETS is in our view, no longer fit for purpose. This is particularly true for internationally traded sectors, such as steel. The EU ETS, in isolation, restricts growth in carbon efficient countries, inversely incentivising production in countries with no carbon standards and hence has little or no impact on global emissions.

We would call on the Commission to considering the case for moving trade-exposed, energy-intensive sectors to a single trading bubble under the EU ETS, where the cap is adjusted in line with the emergence of cost-effective abatement opportunities, particularly in the continued absence of a global deal on climate change.

There is also a question of what to do with the revenues from EU ETS we have recommended that the Commission adopt a technology-neutral approach when allocating further project finance through NER300. Currently it is solely focused on CCS and renewable energy projects. For consistency, it should adopt the same criteria for innovation investment as Horizon 2020.

Finally the debate on the future of climate change policy is likely to be a fractious one, with industry on one side and the Commission on the other. It is a shame that European politics is still dominated by this stark division. At a recent meeting between industry and Hedegraard, the Commissioner warned industry not to try and “water down” the Commission’s proposals. In the UK, we have an open and honest debate with government which is firmly grounded in evidence, and increasingly, we seek to find our common ground and discuss the areas where we have less agreement. This constructive, evidence based debate, has led to a number of significant policy changes such as the Energy Intensive Industry package, and Brussels should take note.

As we highlighted in our recent report, Tech for Growth, we know what the prize (the clean tech sector value) is, £880bn between now and 2050 for the UK, and we need to work together with the UK government and the Commission to avoid policies which create the market, but ensure that EU manufacturers are unable to compete in that market. What we need from the Commission and the UK, is a strong focus on innovation and the technologies which will deliver the solutions to climate change, both in Europe and beyond. With this in mind, we must understand what Europe’s vision for manufacturing is, not just what the top line climate policy will be. We need to imbed competitiveness at the heart of European policy making.  

ENDS

Chief amongst the proposals are new targets for 2030. The 20:20:20 package set a target for 2020 to reduce European emissions by 20% relative to 1990, to achieve a share of 20% for renewable energy sources in energy consumption, and a saving of 20% in energy consumption.

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.

As the dust settles on another Budget, Fergus McReynolds, Senior Climate & Environment Policy Adviser at EEF looks at the impact on green policies of a Budget designed to support growth.

The overall picture for green policies was a bit of a mixed bag; the government reiterated their commitment to investment in a world-leading energy sector and restated that renewables are a crucial part of the energy mix for the UK. However the Chancellor committed to being “alert to the costs we are asking families and businesses to bear”, saying that “Environmentally sustainable has to be fiscally sustainable too”. This supports EEF’s view, presented in our Green and Growth report, that renewables are an essential part of the mix, but policy should be should focus on decarbonising the grid and not prescribe the route. A leaked letter to the EU Commission last week shows that the government agrees.

The Chancellor also highlighted that the Green Investment Bank's pathfinder – UK Green Investments – is now open for business, with over 20 individual projects under active consideration including in renewable energy, waste management and energy efficiency and is on track to make its first investments next month.

On specific policies; the Government have stuck with their trajectory for the Carbon Price Floor. This will almost double the rate of the 'Carbon Price Support' levied on fossil fuels used for power generation from 2013 to 2014. The decision locks the UK into a system with higher energy taxes than our competitors, regardless of the European carbon price. This is yet another unilateral increase in carbon taxation, coming at a time when the economy is still in recovery, and will only serve to widen further the gap between electricity prices in the UK and those in our competitors in Europe.

At current prices, this will see the rate go from £4.94 per tonne of CO2 in 2013/14 to £9.55 per tonne in 2014/15. A tax on this scale would push industrial electricity prices up a further 6-7% on top of the host of existing policy measures already adding to energy costs.

The decision also directly contradicts the government’s stance that the UK will go no faster than our partners in Europe and hamper its plans to rebalance the economy. The more government policies push up the cost of operating in the UK, the harder it will be for manufacturers to invest, create jobs and compete in global markets. A silver lining in this Budget announcement is that the Government have decided rightly to provide an exemption for input fuels used to generate heat in good quality combined heat and power plants and the exclusion of small scale electricity generation of two megawatts capacity and less.

There was better news on the CRC Energy Efficiency Scheme, with the announcement that the Government will seek major savings in the administrative cost of the Commitment for business from this “cumbersome, bureaucratic” policy that “imposes unnecessary cost on business”, the Chancellor went on to say that “if those cannot be found, I will bring forward proposals this autumn to replace the revenues with an alternative environmental tax.”

We welcome this review of the CRC; the scheme is overly burdensome, costly and provides no guarantee of carbon reductions. However, we feel that no amount of tinkering with this doomed tax on British business will ever make it work and therefore the Government should scrap the scheme in the autumn, as part of a holistic review of green polices ahead of the next Comprehensive Spending Review.

Overall this was an interesting Budget for green policies, but perhaps not as interesting as we might have hoped.

Caroline Flint today set out Labour’s five point plan to target green growth. Speaking at an Aldersgate Group event this morning, the Shadow Secretary of State for Energy and Climate Change called for a new industrial strategy that supports the delivery of genuine leadership by demonstrating that the UK can achieve success on both the green and growth fronts at the same time. Flint called for a change, highlighting the need for certainty and simple policies.

The five point strategy echoes much of what EEF’s have been calling for and draws on the 10 recommendations set out by in EEF’s report on Green and Growth published in December. Labour is calling on government, industry and the public to deliver investment in the low carbon economy; however the plan was light on the details in terms of specific policy recommendations.

The five points were:

1.       Unlocking private investment, by delivering on Electricity Market Reform and Government acting decisively and consistently

2.       Better public procurement

3.       A strategy for skills for a low-carbon economy

4.       A rebalanced economy, supporting growth in our regions and encouraging manufacturing

5.       Engaging the public and communities

Each of these points finds parallels with EEF’s recommendations and it is encouraging that Labour recognises the challenges manufacturers face and the opportunities; however we need a shift in policy to help us unlock that potential.

The first call was to unlock private investment in the electricity market reforms and deliver low carbon energy for the UK, recognises the need to decarbonise our energy supply and the need for government to deliver on carbon capture and storage without delay.

Flint’s second call, for better public procurement, needs to focus on setting policy based on achieving the right outcome. The example highlighted by the Shadow Secretary of State of a proposed policy requiring landlords to achieve a minimum level of energy efficiency for their homes, shows that driving the outcome will lead to the greatest innovation.

EEF has lobbied tirelessly on skills and saying that the skills required to grow the economy and green the economy are the same. Government must ensure that STEM careers advice is part of Continuing Professional Development for science teachers and subject curricula and must clarify the legal status of apprenticeships.

The fact that Labour recognises the need to rebalance the economy and is recommending support for growth in manufacturing and in the regions is also encouraging. EEF has long believed that rebalancing our economy goes hand-in-hand with decarbonising it. The Shadow Secretary of State highlighted the importance of ensuring that manufacturers in the UK take advantage of the opportunities presented by the green economy, citing the example of the wind power sector where 80% of the equipment and services come from overseas. Labour is also calling for green investment hubs in the regions, such as Yorkshire and Humberside and the South West and Wales.

The final point was a called to the public to be active participants in the green economy. With public support faltering it is essential that the government provide the right incentives to help the public and small businesses unlock the potential savings, such as micro generation.

Sitting listening to this plan I was encouraged that Labour recognises the challenges and opportunities, however as I have said before we need see a shift in policy from the government to help us unlock that potential.

We believe the government must now look to the next spending review and deliver a holistic review of green and growth policies that will help manufactures to deliver the green economy.

The House of Commons Energy and Climate Change Committee have published the finding of its inquiry into the EU ETS. The report sets out the views of the committee on how the EU is leading by example, and the impact of unilateral action at EU and UK level. While I do not welcome all of the conclusions, two of them did stick out.

The first is the calling into question the impact that the carbon price floor will have on UK businesses and the second is the recommendation to develop international sector agreements.

We at EEF have long said that Carbon Price Floor is not needed to achieve a significant shift to low carbon electricity generation. The Carbon Price Floor presents the biggest risk to competitiveness of UK manufacturing from unilateral carbon policy and a continued low price within the EUA market is likely to significant increase this competitive disadvantage in coming years.

The Carbon Price Floor provides subsidy for new low carbon generation long before it is needed and is seen as purely a government revenue generation scheme that adds unilateral costs onto UK manufacturers. We have recommended that Government scrap it when it is fiscally possible and focus on decarbonising the energy sector, which can be better achieved through other policy measures such as well-designed Feed in Tariffs based on Contracts for Difference.

This said we do welcome the measures announced in the Autumn Statement on the Energy Intensive Industry Package for electro intensive businesses; however the Government must do more to support wider manufacturing.

The report goes on to call on the government to promote global action through International Sector Approaches, again echoing another recommendation of the Green and Growth report published in December.

Energy intensive sectors subject to significant international trade, such as steel, would be better served by individual sector approaches. This approach would be a stepping stone to a full global agreement on reducing carbon emissions and is increasingly recognised in international negotiations. However we feel the Government has an important role in supporting the development of these schemes.

Although I don’t support the calls to use the EED to “recalibrate” the EU ETS nor the call to the strengthening of the EU emissions reduction ambition to 30% in the absence of a truly international commitment to reducing emissions, I am encouraged that the Committee have recognised the impact that unilateral policies can have on manufacturing and the risks to investment in the UK.

Following the publication of our Green and Growth report yesterday, I was encouraged to hear Greg Barkers, Minister of State for DECC, echo our key messages that carbon reduction and rebalancing the economy are integrally linked and that manufacturers will need to be at the heart of the green economy. Speaking at the Associated Parliamentary Manufacturers Group this morning, the Minister said that the government and industry must work together to provide a strong industrial base to build up the green economy.

These messages mirrored Terry Scuoler’s speech at the launch of Solutions for Growing and Green Economy at a well-attended parliamentary reception last night.

Mr Scuoler highlighted that the manufacturing sector is already making big progress towards cutting its emissions, and will be at the forefront of providing the technological solutions to climate change, but that we risked undermining growth and missing out on green business opportunities if our policy focuses solely on relentlessly loading costs on industry.

Mr Scuoler said “we believe there is a better way. So, in this report we argue for a change in our approach that we believe will help us grow our economy and better meet our environmental goals.”

EEF’s report was been well received and has built on the strong relationships we have developed with NGOs, sector organisations, and member companies. I am now looking forward to working in partnership with government to deliver on both growth and green.

Tackling climate change is a massive challenge for all countries and, within the UK, all sectors of the economy. The government has the difficult challenge of both bringing the manufacturing economy out of recession and also delivering on our climate change goals, in terms of meeting both the 2020 in 2050 targets that we have all signed up to. 

Today EEF is launching a report which aims to address this unique challenge. "Green and Growth Solutions for Growing a Green Economy", puts forward solutions that will deliver both green and growth ambitions. The manufacturing sector has, in terms of cutting emissions, done everything that the government has asked them to do. Manufacturers can do more, but this will not be achieved by artificially increasing our costs and putting us at a disadvantage against competitors both within Europe and beyond. What they need to deliver long-term and global action is certainty and cost effectiveness. 

When I talk about certainty, I’m not talking about the certainty of complex, costly and overlapping policy. I am, of course, talking about the need for certainty of investment in the UK. Investment both to rebalance the economy, and investment to deliver the solutions that manufacturers’ can deliver to tackle global climate change. 

If we can, more efficiently, make something here in the UK, then climate change policy should not discourage this. If the carrot and stick policy approach works best, then we should capitalise upon that, and if global companies are looking for a favourable place to invest in low carbon manufacturing, then that place should be the UK. 

We have a long way to go. One of the key challenges facing the UK, is the need to decarbonise of our electricity supply. We need longer-term certainty here of how to meet this goal in a cost-effective and achievable way. Policies to decarbonise the energy supply should focus the outcome, not the route. We must have a policy that enables the market, to invest in the most cost efficient and innovative solutions. 

This report is not about green, it is not about growth, it is about green growth. We need both to work together, otherwise we are doomed to fail.

for more infomation on EEF's Green and Growth campaign please visit http://www.eef.org.uk/manufacturingagenda/green-and-growth.aspx

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

Last night’s lively debate on the BBC’s flagship Newsnight programme saw Energy and Climate Minister Greg Baker, Green MP Caroline Lucas and EEF’s Policy Director Steve Radley tackle the difficult question of balancing a move to a green economy and promoting the growth of UK manufacturing.

Steve Radley and Greg Baker agreed that the government must work with industry to achieve the ambitious targets set out in the Government’s carbon budgets.  

The programme will be available on the BBC’s iPlayer for the next seven days.

http://www.bbc.co.uk/iplayer/episode/b015yr4p/Newsnight_11_10_2011/