CBI chief calls for carbon floor price exemptions for energy intensive industries
Energy White Paper needs to give investors certainty
Recent changes to energy policy have put too much cost pressure on energy intensive sectors and created too much uncertainty for energy investors, the CBI said today (Tuesday). And the need to raise taxes has made the situation more complicated.
Addressing his first CBI energy conference as Director-General of the UK's largest business group, John Cridland told an audience of business leaders, politicians and energy suppliers:
"In the past, we tried to weigh up attempts to reduce carbon emissions together with the needs of industrial users. Today, this seesaw has become a three-way balancing act, with the new third element being the Government's need for revenues."
"Over the last year the Government has triple-dipped into the industry till because of the need to raise revenue, with the Carbon Reduction Commitment, Carbon Floor Price and the recent hike in oil and gas tax. At a time when rebalancing of the economy needs UK manufacturing to be playing a bigger role, energy-intensive industrial users need more help," he said.
"But the Budget unilaterally increased their cost base." Stating that the CBI "is not going soft on the deficit", Mr Cridland added: "Yes, we must see the deficit reduced and market confidence maintained. But when the Government proposes tax measures that are counter-productive, and that hold back investment and growth, we reserve our right to say so."
Mr Cridland said that investment decisions would be affected by the policies: "We're already seeing warnings from companies like Ineos that its chlorine plant in Runcorn could become uneconomical under the sudden introduction of the proposed carbon floor price.
Tata steel is facing the same problem. One major construction company is now finding it will soon cost less to import its cement from Spain than to produce it at its UK plant. "Yet Tata makes the steel that goes into the turbines. Ineos makes the lubrication that helps the blades turn. And we need up to 150 tonnes of cement to generate every megawatt of offshore wind."
Setting out what is required, Mr Cridland said: "On the Carbon Reduction Commitment (CRC), the CRC was meant to be green, aimed at encouraging energy efficiency by recycling financial incentives. Well, not any more it isn't. It's just a cost, and a complex scheme. So the Government should axe the CRC as it stands. If it wants a green tax, it should do the job properly. "
On the £2bn North Sea oil and gas levy, the Government has undermined the sector's confidence. Centrica has already announced it's to leave its Morecambe South gas production field because it's paying up to 81 per cent tax there.
"We'll see weakened North Sea investment, increased reliance on
imported gas and higher prices for business and domestic consumers.
We can address this by introducing a higher 'trigger price' for
natural gas and expanding field allowances.
And on the carbon floor price, I am concerned that even if the price of carbon in the EU ETS rises, as is the case now, the carbon floor price will not necessarily fall correspondingly. It risks tipping energy-intensive industries over the edge.
The CBI supports the carbon floor price in principle, but we have to see exemptions for those industries most at risk - those very industries that a critical part of our low-carbon economy. Therefore, we propose a rebate-based exemption linked to the energy intensive industries' work on energy efficiency."
According to the CBI chief, heavy energy users need and want to do their bit and reduce their emissions, and many are already doing so. Mr Cridland said what these firms need is help to use renewable heat, use energy from waste and use more of the innovations already out there.
He said: "To achieve this will require a working, flexible and future-proof exemption model, it may also require a different level of rebate for different sectors. That's why a clear definition of energy intensives is so important: businesses need to receive rebates when they qualify as a risk, so that everything's transparent and everything's understood."
Equally important is the need to give the energy industry and investment community greater certainty in the Energy White Paper. Action is needed to encourage investment and unblock the planning system, but Mr Cridland remains to be convinced that this summer's White Paper will deliver what's required.
He said: "We need new kinds of investment - particularly from institutional investors. The Government has some ideas, and a well-run Green Investment Bank should attract large-scale capital from pension funds. But while the bank will help with the scale and pace of investment required to meet this challenge - some £200bn by 2020 - it isn't a silver bullet. In addition, we need to get rid of all the planning delays and all the changes in the rules that make investors want to look elsewhere. We also need the answers from this summer's energy White Paper. I am not yet convinced that they will be there. We don't want a white paper heavy on promises of round-table meetings and departmental listening exercises and light on the boldness and certainty that's required."
Mr Cridland went on to set out the areas where the CBI is seeking clear decisions from the Government. These include: A clear direction of travel for the electricity market reform (EMR) package: whether the low-carbon feed-in tariff will be a "contract for difference", which has the advantage of following the market price itself, or a "premium feed-in tariff" model, which will be easier to implement for the Treasury.
On the institutional architecture: who will manage the contracts for these new feed-in tariffs? How will the tariffs be set?
On capacity: is it seasonal peak demands that the Government is trying to solve, or the overall capacity for supply for the intermittency of renewables as part of our energy mix?
Mr Cridland added: "Investors are telling me they need answers. They see the EMR package as a suite of measures, which have to make commercial sense taken together. All this means that we're taking unilateral action in the UK to embed the price of carbon, putting our actions far out in front of our EU counterparts and any international economies. For this reason, we need to press for an ambitious international agenda, and to see Durban achieve what Copenhagen failed to"
"We need an international framework that'll ensure all our major competitors buy into this agenda and, over time, to put a comparable price of carbon on their activities. We need to get the EU Emissions Trading Scheme working even more effectively in the future."