Decarbonising manufacturing: time for a new approach?

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The government is starting to review the confusing mix of policies aimed at reducing industry’s contribution to climate change. EEF’s policy director Paul Raynes sets out our thoughts on the reforms needed.

One of the problems with the way we are governed is that it is hard to criticise a policy without sounding like you are also carping about what the policy is trying to achieve. But sometimes it is necessary to think again because policies aren’t going to achieve objectives we all support. Green taxes are a case in point.

Whitehall got the carbon-pricing bug just about the same time everyone realised the millennium bug was a let-down.

In the twenty years before then, Britain’s industrial carbon emissions had been falling at a steady rate. Technological innovation and market forces were greening industry, unaided by whizzy policy instruments. Since then, and despite a millefeuille of carbon prices, green taxes, levies, incentives and trading schemes that have not only pushed up the cost of energy but made the average business electricity bill about as transparent as a brick, the rate of industrial energy efficiency improvement has slowed, as this graph shows.

graph

Moreover, Britain’s principled determination to atone for two centuries of industrial smog by putting business in a fiscal hairshirt has not benefitted the world with all those tons of carbon saved. Other countries have simply sold us steel and paper whose prices are uninflated by carbon taxes.

Against the 36% reduction in UK domestic emissions since 1990, we simply allowed our overseas suppliers to emit carbon worth all but 7% of that. Climate change policy is surely about saving the planet, rather than about licensing our supply chains to wreck it on our behalf.

Wider review needed

This doesn’t feel like a policy mix that’s going to get us to the ambitious climate change targets we all support. EEF encouraged the Chancellor to take a good hard look at the energy tax and efficiency policies he has inherited from previous administrations, and his July budget has begun that with a review of a limited portion of these.

CarbonQuote

Unsurprisingly, manufacturers see that as just a start to the rethink that’s going to be needed.

Punishing business for using energy isn’t really doing the job of accelerating Britain’s low-carbon transition.

Our report out today makes a simple and scarcely radical proposal for what that rethink should aim to do. Punishing business for using energy isn’t really doing the job of accelerating Britain’s low-carbon transition. Our research, published today, suggests energy or carbon prices alone may never, realistically, be high enough to deliver the level of improvement our target require. So why not replace the stick of ever-higher policy costs with the carrot of positive incentives for green investment?

In more detail, we are suggesting some practical short-term steps to simplify the tangle of green levies, target what government funding survives the spending review into encouraging research and investment in green technologies, and use regulation and other levers to pull industry into a green future.

The green economy should be good business for British firms. British tax payers are forking out billions of pounds on wind turbines, but we’re still importing them all. Environmental products are a £3.4 trillion global market that British firms aren’t getting their fair share of. It is time for UK green policy to evolve from a guilt trip into a commercial adventure.

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