Mr Workman highlighted that the UK’s Paper Industry has made significant
progress over recent years in reducing its energy consumption and its carbon
emissions. However, production is inherently energy intensive and the sector
remains a major user of both gas and electricity.
The sector has been put at a competitive disadvantage due to the increasing
gap in energy costs between the UK and competing trading blocs, notably
the USA. This, says Mr Workman, will threaten the Industry’s future viability
unless measures are taken.
In particular, Mr Workman made the following suggestions:
• The Carbon Price Floor (CPF) should be cancelled or frozen at the current level. This is a unilateral UK-only tax that, with no link to European Union Emissions Trading System allowances, has no actual impact on the total level of emissions. Yet the CPF’s “escalator” guarantees ever-increasing energy costs to UK energy-intensive manufacturers.
• Industrial generation should be supported. Our sector has invested hundreds of millions of pounds in Combined Heat Power (CHP) plant, helping reinforce and decentralise the grid, and in delivering the generation infrastructure vital to the UK. At the very least, we would seek to make CHP exempt from Carbon Price Support taxation.
• The compensation package for electro-intensive installations should be extended and widened in scope. The part already agreed only offsets around two thirds of the additional costs, while the other part of the promised support package still awaits State Aid Approval from the Commission.
• The Climate Change Levy (CCL) discount from Climate Change Agreements (CCA) should be maximised. A significant way the Government could support energy-intensive industries would be to offer the maximum CCL discount allowed under EU law to companies that are participants in the CCA scheme, where the potential for energy efficiency measures are incentivised.
• Costs arising from the Renewables Obligation (RO). CPI understands that forthcoming revisions to State Aid rules may allow compensation to be offered to offset some of the cost of the RO. We estimate the RO adds around 20% to the wholesale cost of grid electricity and the opportunity to offset some of this cost should be progressed.
• The Carbon Reduction Commitment (CRC) should be scrapped. The Chancellor has already stated an aspiration to cancel this policy and CPI believes this should be the time. CRC simply adds to the cost of energy for much of UK industry.
• There should be a well-funded programme to support industrial energy efficiency. Present policies assume the ‘stick’ of ever-higher energy prices will force energy efficiency. However, the ‘carrot’ of strong financial support for energy efficiency would be a real attraction to help secure and retain UK investment.
• Policy decisions can have unforeseen consequences. We highlight the danger to other users of wood products arising from subsidised use of biomass for large-scale energy-only power generation. We therefore seek further reductions in these subsidies.
• The UK needs to be more realistic about our ability to “lead the world” in decarbonising the economy. UK emissions are tiny in a global context and it should be better understood that unilateral actions are essentially irrelevant, especially when direct UK emissions are simply substituted for emissions embedded in imported manufactured goods previously made here. It is
critical that UK policy is set in the context of policies being followed by other nations.
Mr Workman concluded by suggesting that gas should have a key role in helping reduce UK emissions until at least the 2030’s, and urged the Chancellor to examine the working of the wholesale market and decouple any link between oil and gas prices. He stated: “The UK should be able to benefit from global gas markets and specifically narrowing the gap between UK and US gas prices should be a priority, especially with the forthcoming free trade deal.”
For more information, please contact David Workman on 01793 889601 or email dworkman@paper.org.uk.