Government urged to turn 'stick' of ineffective green taxes into 'carrot' in energy policy review

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New report calls for scrapping of Carbon Price Floor as part of drive to reduce emissions.

Government should move away from green taxes which penalise businesses and instead use tax incentives to reduce carbon according to a major new industry report published today by EEF, the manufacturers’ organisation.

The report, ‘The Low Carbon Economy – From Stick to Carrot’ forms EEF’s response to the review of carbon taxes announced by the Chancellor in the Budget Statement and comes ahead of climate change talks in Paris later this year. In it EEF is urging the Government to use the review to take a bold new approach to energy and climate change policy to cut costs for energy users, reduce red-tape, as well as delivering major reductions in industrial emissions.

As companies look at new technologies which will dramatically reduce their carbon emissions, EEF is also urging Ministers to widen their review of all aspects of business energy efficiency taxation and consider introducing tax credits as incentives for business to reduce emissions.

Commenting, EEF Director of Policy, Paul Raynes, said:

“The current system of energy taxation is too complex and is hurting Britain’s competitiveness. So instead of simply hitting firms with the big stick of ever-higher carbon taxes and levies, we should be offering them the carrot of tax breaks to invest in potentially very profitable advanced low carbon technologies."

“Government should use the energy taxation review as an opportunity to step back, and make some bold decisions that can reduce energy costs, cut back on carbon emissions and improve the environment.”

According to EEF, following a decade of tinkering the UK now has a bewildering mix of energy efficiency schemes and taxes that have pushed up energy costs and increased red tape without a big enough impact on emissions. This has also made the price of energy for many industries much higher than those faced by European competitors.

In response, EEF is calling on the Government to widen the scope of its energy taxation review which should include the objective of reducing the overall burden of energy taxation by the end of this parliament. It should begin by scrapping the Carbon Floor Price and the overly-complex Carbon Reduction Commitment (CRC) energy efficiency scheme along with the introduction of a new energy efficiency tax discount to better drive investments in energy efficiency.

It is estimated that the Carbon Price Floor will cost energy consumers £23 billion between 2013 and 2020 but only £6.5 billion of this will achieve its intended aim of supporting investment in renewables. Similarly, the CRC energy efficiency scheme is estimated to cost businesses almost £900 million in 2015/16 alone, but is only expected to deliver £334 million of investment over the next decade.

The report also calls on government to develop decarbonisation action plans for key energy intensive sectors, explore financing options that can deliver the major investments required and develop a targeted innovation programme to bring forward the technological solutions required.

This year the Government published research that indicates emissions reductions from the UK’s most energy intensive industries could be reduced by as much as 73% by 2050. However, such reductions will not be easy and are estimated to cost up to £16 billion, a figure UK industry cannot afford while remaining globally competitive. Substantial investment will be required in further research, development and ultimately deployment; the current policy mechanisms are ill equipped to bring forward this kind of investment.

Paul Raynes added:

“It is clear that substantial opportunity exists to reduce emissions in heavy industry but that significant barriers must be tackled if we are to realise it. Industry wants to step up to the plate but cannot do so alone, this must be a partnership between us and government. In the absence of an innovative new approach to reducing emissions in these sectors we shall simply see existing policy damage competitiveness, chip away at investment and ultimately undermine these industries."

Additionally, EEF would like to see government do more to ensure the opportunities presented by decarbonisation can be maximised by the UK’s manufacturers; a vital component of this is improving the environment for low-carbon innovation in the UK.

According to EEF, the potential prize could be high. The global market for low-carbon environmental goods and services was already estimated to be worth £3.4 trillion in 2011/12, while meeting the UN’s goal of keeping average global warming to 2°C is expected to require $1 trillion (£0.65 trillion) to be spent on clean energy systems alone each year by 2030, providing considerable opportunities for suppliers of suitable technologies.

Paul Raynes added:

“It is no secret that the low-carbon transition provides a major opportunity for manufacturers, but unfortunately it is not one we have been fully able to grasp to date, this needs to change. UK industry has a long and illustrious history of technological innovation; we must ensure that government policy strives to better unlock this potential and deliver the benefits to the UK economy and our climate ambitions.” 

In particular EEF would like to see government to increase the percentage of government R&D funding spent on energy and environment to the EU average, better signpost public money and support available and ensure that the wider regulatory environment encourages innovation. 

The report is available to download at http://www.eef.org.uk/resources-and-knowledge/research-and-intelligence/industry-reports/the-low-carbon-economy-moving-from-stick-to-carrot

 

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