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.