A MULTI-MILLION pound sweetener to soften the blow of new measures to cut carbon dioxide emissions will do nothing to alleviate concerns of further carbon leakage, say leading industry figures.
The Carbon Floor Price (CFP), which came into effect last week, will net the UK Government over £4 billion in tax revenues over the next few years.
Its introduction was announced in the Budget of 2011 and contributed to closure the Lynemouth aluminium smelter with the loss of 600 jobs. Alcan said the CFP levy would wipe out the Northumberland plant’s annual £40m profit.
In an effort to guard against further cases of carbon leakage the Government last month set up a £250m compensation fund to support energy-intensive businesses, but this hardly bears comparison to the £7bn the German Government is offering business to compensate for its renewable energy surcharges.
Members of the London-based Energy Intensive Users Group (EIUG) are businesses where energy can account for up to 70% of production costs, such as those in the steel, paper, cement, lime, aluminium and chemical industries.
Director Jeremy Nicholson said: “The compensation measures are a step in the right direction but they have not leveled the playing field.”
The CFP will see larger carbon emitters charged £16 for every tonne of carbon dioxide they emit, rising to £30 per tonne by 2020, and £70 per tonne in 2030.
The European carbon price is currently languishing well below £3 per tonne, compared to a £30 high in 2008, meaning UK businesses have to pay over £13 more to emit carbon than EU competitors.
Andrew Hebden, assistant director of CBI North East, said it welcomes the measures to support energy-intensive industries, adding: “This is all the more important to counter the increasing difference in carbon price between the UK and the EU.”
Fertliser manufacturer Growhow, which employs 200 people in Billingham, is a member of the EIUG.
Deborah Pritchard-Jones, public affairs director at Growhow, said: “The compensation package as it currently stands will only last until 2015 and we're not sure what the level of support there will be after that.
“The Carbon Floor Price will impact on our business, the compensation is short term and consequently we have no certainty on the future costs. Long term investment decisions require certainty.”
The Government estimates the CFP will cost energy-intensive business £130,000 a year in 2013, rising to £1.1m in 2020. But for some larger North East businesses this could be much more.
At the time of the CFP announcement in 2011 Tata Steel on Teesside and a further 20 of Teesside’s chemical and process companies expressed concerns, saying the cost implications could deter long term investment and cost jobs.
A spokesman for Sahaviriya Steel Industries, who have since bought the Teesside plant, said: “At this stage we are not certain of how the compensation scheme will work, but further increases in input prices are detrimental, and create uncertainty over potential future investment.”
Nicholson says the CFP and further measures in the Energy Bill may lead to doubling of energy costs over the next decade.
Michael Dent a director at South Shields–based energy experts Utilitywise highlights how this UK-specific tax will harm indigenous businesses.
“It’s generally accepted that there is a real need to increase the cost of carbon throughout Europe but to maintain a level-playing field for UK industry, policy should be set at a European level.”
As things stand UK business is at a long-term disadvantage to European competitors, and the continent is at a disadvantage to the US, where shale gas has halved energy costs.
Corin Taylor, senior economic adviser to the Institute of Directors, recently spoke to members of Teesside’s process industry at a shale gas event organised by Teesside University Business School.
He highlighted how the CFP does nothing to reduce carbon emissions and added: “With US energy costs falling the UK and Europe are not looking as attractive and there is a real risk the trickle of businesses leaving the UK could become a flood.”