Inside Track

EEF's Health, Safety and Environment Blog

New energy tax threatens to undermine growth agenda

by Gareth Stace, Head of Climate & Environment Policy 10. February 2011 09:55

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.

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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.” 

Was the Lord Marland response worth the wait?

by Gareth Stace, Head of Climate & Environment Policy 12. November 2010 16:11

Back in the summer, Lord Marland, Parliamentary Under Secretary of State at DECC, wrote to stakeholders asking for suggestions as to how the burdens imposed by policies and regulations associated with energy and climate change could be amended, reduced or removed. EEF warmly welcomed this refreshing engagement from the new coalition government, seeing it as the new age in how government intended to work with us going forward.

Fortunately, EEF had recently published our vision for UK climate change policy and therefore we were able to set out our views in full. This week, Lord Marland has published his response to this consultation (see responses below).

So was it worth the wait? On the whole, I don’t think so, however the response should not be seen in isolation. I believe that many of the views that stakeholders sent into DECC, will have been viewed with interest by more than just the Marland consultation team and therefore will be feeding into the general government policy process.

The government response didn’t contain much beyond summarising the views DECC received from the 90 organisations that bothered to share policy views. I would have liked to see something bolder, but could DECC have achieved this through this mechanism, as much of what is wrong about UK climate change policy is shortly to be consulted upon through various separate consultations from both DECC and HM Treasury.

Of course I am being too hard on this government response. Looking at it from another angle, this sort of response could be just what we need. The paper looks at all DECC policy in the round, rather than in silo.

Is this a missed opportunity, where DECC could have used this project to look at the policy burden across the department. Then recommended sweeping strategic changes in order to achieve the goal of reducing UK greenhouse gas emissions at least cost to the economy in a certain, simplistic and transparent way.

I would be interested to hear your views on this government response, am I being to flippant on a Friday afternoon here?

Reducing Red Tape letter.pdf (81.86 kb)

Summary of responses.pdf (76.33 kb)

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This is an informal blog about health, safety and environmental issues written by EEF's policy, representation and service delivery staff. While it is written from an EEF perspective, contributions should not be taken as formal statements of EEF policy, unless stated otherwise. Nor does it cover all the issues on which we campaign - you can check these out in more detail at our main site.

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This blog is written by experts from the health, safety and environment team at EEF. We help manufacturing businesses evolve and compete.  We provide them with business services that make them more efficient and management intelligence that helps them plan.  Our work with government encourages policies that make it easy for them to operate, innovate and grow.

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