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Penistone MP speaks out about energy costs for Intensive Energy manufactures

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Angela Smith worries that high energy manufactures are being squeezed by high energy costs and she has today challenged the government to support the sector

It is not only households that are feeling the pinch when it comes to high energy costs, so say’s Angela Smith MP.

In a speech in the House of Commons today Angela Smith told fellow Members of Parliament that many manufactures in her constituency are now facing a myriad of green and other taxes as well as increasing prices of energy that are squeezing margins and allowing international competitors not facing the same costs to undercut them.

While she pointed out that she has not met many industrialists who don’t understand the need for green taxes and the need to decrease emissions many are now concerned British industry is becoming seriously un-competitive with European competitors and those further afield. For instance Angela points out in her speech that policy driven taxes and levies for the most intensive users were 2.5 and 6.5 times higher than in Germany and France respectively in 2011, something many manufactures are concerned is unsustainable in the long term.

Worse still, it may even lead to increased emissions through carbon leakage as high energy users are forced elsewhere where environmental standards are lower with the associated cost of jobs and investment in the UK. And Angela points out that manufacturing is still important to the UK still being 12% of the UK economy.

In the speech she called for government to seriously look at the issues facing this important sector of the UK economy that in many cases is actively supporting the green economy with for instance 1000 ton of steel needed for each off shore wind turbine.

In the speech she says “maybe it’s time to look at consolidating all the green taxes and levies, increasing the capital allowances for a wider range of energy efficient technologies, by way of a return of a much higher proportion of the environmental taxes into such investments, or by completing scrapping the carbon floor price altogether, a unilateral tax which is projected to pull in over £2bn to the Treasury by 2020 but which threatens to undermine the competitive of our key industries.”

Commenting  further Angela says;

“Manufacturing is still important, it still provides many people with jobs and it contributes massively to the British Economy.

However, for many high energy users the increased energy costs, some will see real rises in excess of 70% by 2030 it is making them uncompetitive with foreign competitive in a global market place.

The government needs to look again at how it supports this important sector, if not we could see jobs move overseas, and worse still global emissions rise as manufactures move to countries with lower environment standards than ours.”

 

Notes :

Full speech is below, check against delivery

Westminster Hall debate 4th December 2013

I represent a constituency which is host to Tata Speciality Steels, Naylor Industries, a ceramics manufacturer which specializes in clay pipes, as indeed does Wavin, a bit further to the west of the constituency. We are also home to a paper mill at Oughtibridge, but unfortunately this is due to close in 2015 after a long, 140 year history of paper making on that site.

My constituency is also home to the British Glass Federation, something of which I am very proud, as this reflects a tradition of glass making in the area.

Now, nationally, manufacturing represented 12% of national output in 2011 and 8% of employment; at the same time, 14% of output in my constituency was generated by manufacturing and it accounted for 11.8% of employment.

So, manufacturing really matters to my area. I’m very proud of that and the area is very proud of this heritage; a belief in manufacturing runs deep and there is a tangible, emotional connection between industry and the people of South Yorkshire. And I want to see us build on that legacy - it’s an ambition in an area which hasn’t forgotten its industrial roots and doesn’t want to let go of them.

But the big manufacturing employers in my constituency, in steel, paper and ceramics, are also high energy users; it is estimated, in fact, that about a third of the costs of their production is related to energy use. So, my work as an MP is not just about talking up manufacturing, its need for long-term investment, for skilled workers, for robust supply chains and growth of the small to medium sized sector;

It’s also about making the case to government about how it can help secure cost-competitiveness in a global context and for many of my industries, energy costs are a key factor in all of this

What, then, are the facts on energy costs for these high-end users?

  • Tata Steel stated 2nd December 2013, wholesale electricity year ahead prices are 70% and 45% higher than in Germany and France respectively
  • policy driven taxes and levies for the most intensive users were 2.5 and 6.5 times higher than in Germany and France respectively in 2011
  • Scale of difference is large enough to turn profit to loss and to send out negative signals to potential investors
  • On the taxes and levies, the British Ceramics confederation has pointed out that DECC’s analysis shows climate related charges are already 19% of the baseload price
  • This will rise to 47% in 2020
  • EEF states that the government’s own estimates indicate that industrial electricity prices will have increased by 50% by 2020 and 70% by 2030.
  • Official estimates, acc to the Financial Times on Monday, are consistent with this picture
  • Moreover, Tata Steel is clear that the green levy which has the greatest impact today is the Renewable Obligation; this levy, along with small scale FITs – will cost £10.50 per MWh in the coming year, from April 2014 – an increase of more than 100% in three years. Tata points out too that many steel makers in Europe will either be completely exempt or have their charge capped at half a euro per MWh

Clearly, then, there is a serious problem here for energy intensive industries in the UK, with spiralling energy costs compounded by a myriad of taxes and levies which combined is threatening our ability to compete, even within the EU.

The Ceramics Confederation points out, for instance, points out that some of its manufacturers operate some of the most energy intensive processes in the UK and that several ceramic manufacturers have already relocated to Germany and France, with electricity costs cited as a key reason, so the impact on cost competitiveness is already being felt

And even more worrying, there is a real risk that the tax regime we have at the moment will do nothing to lower emissions globally, if, as the Ceramics Confederation points out, the manufacturing focus emerges in less regulated or less energy efficient factories abroad

Carbon leakage is therefore a real threat. But the irony is even greater than that, because energy intensive industries are making huge efforts to cut their costs by improving energy efficiency.

  • Tata uses 40% less energy to produce the same amount of steel today as compared with 1975
  • Ceramics industries have already invested in the latest technology to improve energy efficiency to the maximum level possible – Naylors in my constituency
  • Why wouldn’t they, in an increasingly competitive global trading environment?
  • Another example shows Tata generating power at some of its sites by recycling waste products, with a programme in place for capturing and reusing heat generated by relevant processes

So, in summary of where we are, it’s clear that we need to see reform of the system of green taxes and levies currently in place, because of the risk of losing manufacturing capacity, either within the EU or elsewhere, with the linked risk of carbon leakage.  

But let me be absolutely clear; I have not, as yet, come across one industrialist who disagrees with the principle of green taxation; everyone understands that a well-designed system of taxation has a role to play in stimulating the growth of the low carbon economy.

But this process has to be very carefully balanced with the critical need to avoid damaging the cost effectiveness of our manufacturing base. Our energy intensive manufacturers are important in their own right. I know that; I come from a family which has been involved in steelmaking for at least five generations, if not more.

But they are even more important when you realize that these very same industries have a key role to play in providing components for the low carbon economy:

  • Ceramics – durable, resource-efficient construction materials and technical ceramics used in nuclear, wind and solar generation
  • Clay pipes – 100% recyclable and durable, with long life
  • 1,000 tonnes of steel in each offshore wind turbine and a requirement for 6 different grades of steel
  • Steel exterior for the Nissan leaf electric vehicle was developed and produced in the UK by Tata Steel
  • And last but not least the polyurethane foam insulation developed by BASF saves 233 tonnes of carbon in its lifetime for every ton used in its generation.

So what is to be done?

Well, it’s worth summarizing at this point the array of schemes in play, or due to come into play soon:

  • Climate change levy
  • Small scale FIT
  • EU ETS scheme
  • Renewables Obligation
  • Carbon Floor Price
  • Energy Company Obligation
  • Carbon Reduction Commitment
  • Landfill tax
  • Aggregates levy
  • Contracts for Difference

And maybe I haven’t got all of them on this list!. But the point is made.

For industry, the green tax landscape is burdensome in two key ways; in terms of cost, and in terms of the bureaucratic tangle involved in ensuring compliance. For example, one of the businesses in my constituency employs a full time, highly skilled individual just to ensure that its obligations are met and that it is compliant with the green tax regime.   That’s both a cost and a bureaucratic nightmare

So, I repeat, what is to be done?

Well, industry itself has a few ideas, a few key demands:

First of all, the energy intensive industries want to see a level playing field with European and non-European competitors on climate-related taxes and levies, to ensure that world-class companies in the UK can remain internationally competitive ; the EEF in particular wants this fresh assessment of the issue to take place within the context of the fourth carbon budget review

Secondly, industries need to see detail of the promised exemption of ceramics and other industries from the full costs of the Climate Change Levy from next year. The Autumn statement tomorrow would be a good opportunity to provide that detail and details too of how the government is going to negotiate a way through this without having to make reference to state aid rules.

In addition, the expected change in revised guidelines means the government has an opportunity to exempt energy intensive industries from both the Renewables Obligation and small scale FITs and the EEF and the Ceramics Confederation in particular make reference to the impact of these two taxes on their member businesses

Industry also wants to see the £250m package, moulded around the ETS scheme and the CFP, in place for the duration of the latter policy through to 2030, and for the value of the compensation to reflect the floor’s upwards trajectory

And the Contract for Difference is worrying energy intensive industries too, so they are looking for proposals which are sufficiently comprehensive to exempt a wider group of the companies badly affected by cumulative and rising environmental taxes.

Indeed, the ceramics industry in particular would argue that its members, together with glass and cement manufacturers, have been excluded from current EU proposals for revised state aid guidelines. Steel, paper and chemicals are included, but not the other three; the latter are looking to the UK government to make the appropriate representations on this matter at EU level.

Finally, both the steel and ceramics sector point out that the UK government could do a great deal for their members if the capital allowances were to be increased for a wider range of energy efficient technologies, by way of a return of a much higher proportion of the environmental taxes into such investments.

The Government clearly faces a bewildering range of choices. Perhaps, therefore, it also needs to consider two more radical proposals before making up its mind. Perhaps we need to see a consolidation of all these taxes and levies. Perhaps we just need to simplify the system, both to reduce the bureaucratic burden on our manufacturing companies and to make it easier to work out what the cost burden should be and how best to compensate those industries at risk of losing that competitive edge. Transparency and good design of environmental taxes could be achieved by simply revising and reforming the complexity of the current regime, making it more workable, easier to understand and fairer.

Or perhaps we could just scrap the carbon floor price altogether. It’s a unilateral tax which is projected to pull in over £2bn to the Treasury by 2020 but which threatens to undermine the competitive of our key industries.

The Minister needs to be clear about the choices the government are prepared to make, in response to the demands I’ve just outlined from the energy intensive industries themselves. Indeed, the Chancellor needs to be clear in his Autumn statement tomorrow that the political will is there to protect energy intensive industries from the potentially disastrous impact of this wide array of green taxes and levies on their cost-competitiveness, and that he is prepared to set in train a robust response to the pressures they are experiencing.

Our manufacturing base demands it; our industries deserve it, not least because of the contribution they are already making to energy efficiency and the building of the low carbon economy. But most important of all, our country, the UK, desperately needs it. Our future has to see an expansion of the manufacturing base, not a further contraction, and the government has to act.

I await the Minister’s comments with interest.

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