Energy Intensive Industries

David Mowat Excerpts

Wednesday 4th December 2013 Westminster Hall

[Paul Farrelly]

That was one of my hon. Friend’s shorter interventions, Mr Robertson. Her constituency, Stoke-on-Trent North, includes Burslem, the mother town of the potteries. She is the Chair of the Environmental Audit Committee and will be sadly missed when, as she has recently decided, she retires at the end of this Parliament. I totally agree with her; what we need is a balance. What I want to show today, in the light of the pleas from industry, is that we have not got it quite right yet.

[David Mowat (Warrington South) (Con)]

rose—

[Paul Farrelly]

I see the hon. Gentleman is straining at the leash.

[David Mowat]

I shall be as quick as I can—and I, too, congratulate the hon. Gentleman on obtaining the debate. The topic of Germany has been raised, and we should all understand that its emissions are higher than the UK’s per capita and per unit of GDP—by about 30%. Germany has more renewables than we do, but burns far more coal and will not go along the route that we have taken so unilaterally and quickly.

[Paul Farrelly]

The hon. Gentleman makes the point very simply; we must look at things in the round when we consider reform of the system. I want to explain that industry wants reform to be simple and far-reaching, to permit competition with big companies that enjoy great support in Germany.

We are all familiar with the concept of fuel poverty—elderly people or less well-off families spending significant parts of their income on keeping warm. That concept could, strange as it may seem, equally be applied to some of our major manufacturers. Energy can account for up to a third of all costs in the ceramics industry and up to 70% of costs for major chemicals manufacturers, as we have heard. Big international price discrepancies matter, and will matter more if prices continue their inexorable rise. Like the household bills that we have put under the microscope in recent weeks, the price that industry pays for electricity also breaks down into three main components. One is the wholesale cost, which is rising. Another is climate-related charges. Hon. Members will have to bear with me while I go through a short list of what they include: the carbon price floor, the EU emissions trading system charges, the climate change levy, the renewables obligation, small-scale feed-in tariffs and, to be added to that bevy of burdens in the future, contracts for difference under electricity market reform. The third component is transmission charges, which are also increasing ahead of inflation, and which also include climate-related costs in the form of subsidies for offshore wind and other intermittent renewables.

I do not want to torture hon. Members and the Minister into torpor and total submission, but I shall give a couple of examples, provided by the British Ceramic Confederation, of the present and future impacts on industrial electricity prices of some of the carbon taxes and climate levies. Today, without climate change policies, the baseline electricity price that is being paid is about £70 to £71 per megawatt-hour. The climate change policies add £4 to £14 to that, so the cost rises to between £75 and £85. It is reckoned that, in 2020, which is not so far off, on top of a forecast base of £79 per megawatt-hour, the policies in question will add £15 to £35 or so; and in 2030, with the same forecast base, the cumulative effect of carbon tax and levies will, it is estimated, add £25 to £55, taking the price of electricity beyond £100 per megawatt-hour, to a top-of-the-range £130.

--- Later in debate ---

[David Mowat (Warrington South) (Con)]

Thank you, Mr Robertson. I will look at the clock behind my shoulder, or perhaps you will tell me when I am getting close to my limit.

I congratulate the hon. Member for Newcastle-under-Lyme (Paul Farrelly) on securing the debate. I have been an MP for three years, and I have taken part in many debates on green jobs and how we were not moving fast enough on green subsidies. It is good to have a debate today on the 900,000 jobs in our economy in the chemicals, steel, cement and ceramics industries. I will mention one more industry, which is represented in my constituency: the aluminium industry. It, too, is affected by high energy prices. Furthermore, although intensive industry is affected most by high energy prices, all industry is affected. We are trying to rebalance the economy back towards manufacturing, and gross domestic product growth correlates to energy use, so it is nonsense to say that only intensive industry is affected.

We are not talking principally about industries moving abroad, although that does happen; we are talking about marginal decisions about investments that do not come to our country, but go somewhere else. That is much less obvious. When an investment goes to Wilmington in the United States, instead of Teesside, or to Germany, instead of this country, nothing necessarily closes, but we do not get the expansion that we might have.

Let us look at our competitive position vis-à-vis Asia, the United States and Europe. Historically, perhaps because of cheap labour costs, we have been used to some manufacturing moving to Asia, but we are now finding manufacturing moving to the United States and to Europe. That is far more worrying.

Turning to the US briefly, it is worth noting that US gas prices have fallen from $9 per million cubic feet to $3 per million cubic feet. That is utterly transformational. It is not the Government’s fault—it has nothing to do with taxes—but when something like that happens to an economy, there is a stark transformation. It affects feedstock prices for the chemicals industry and energy prices right across the piece. It has had a massive impact on the US’s competitiveness, relative to ours. Luckily, the US is a couple of thousand miles away, so the impact will not be felt quite so much as it would have been had it happened in Europe; but the shale gas revolution in the US is one of the most important events to have happened in global politics in the past decade. Members who are tardy or reluctant to endorse our taking action on shale gas need to reflect on that fact.

A bigger and more worrying issue is the EU. Our big competitors are France and Germany, and we have already heard about the differential that is arising. The issue is not so much the differential today—some may disagree with me—as the direction of travel for all of us. We have talked a great deal about carbon targets since the Climate Change Act 2008. We are the only country that has carbon targets—no other country in Europe has the same degree of statutory enshrinement of carbon targets. That fact drives behaviour. We have seen that in the dismantling of the emissions trading system in Europe. To all intents and purposes, the carbon price in Europe is now €2 or €3 per tonne, but in the UK, due to the carbon price floor introduced in April, it is about €20 per tonne. That will be absolutely devastating. At the margin, power stations will go to Holland, which is now building coal stations, and supply us through interconnectors. I do not see where that gets us.

This is an issue for all industry, not just intensive industries. The Government have assigned £250 million to help intensive industries, but that will not be enough if we are going to give ourselves differentially high energy prices into the medium term. All of us in this place need to reflect on that. I do not want to cause discord between the two sides of the House, but we have a vote this afternoon on energy prices. Some of the Members asking today that we keep prices down—something I desperately want to do, both because of fuel poverty and for the reasons we have heard about industrial competiveness—have the chance to vote on an amendment brought forward by the Labour party in the House of Lords that asks that we accelerate the closure of coal-fired power stations in this country. In my opinion, that will have the direct impact of raising energy prices by between 3% and 5%. I see the Opposition Front Benchers are whispering to each other, so I may well be about to be told that the Labour party has decided not to support that amendment.

[Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)]

On a point of fact, the amendment was from the Liberal Democrats. It will be interesting to see how they vote this afternoon.

[David Mowat]

I thank the hon. Gentleman for that information; whichever party brought the amendment forward, I am clean. I will not be supporting it, and I suspect that many of the people in the room are sympathetic to my petition. All I would say is that it is the official position of the Labour party that the remaining coal-fired stations in our country should be decommissioned on an accelerated basis, with all the costs that will incur for the industries we have been talking about. We should reflect on our debate this morning with regard to the debate this afternoon.

The decarbonisation target has a cost impact, as well. Nothing in the world is free. We have heard about PV tariffs; I went through the Division Lobby when the Government were reducing the subsidy for solar from six times grid parity to four times grid parity—a reasonable measure, but again, the Labour party divided on that. It is important to understand the impact of what we are voting for on fuel poverty and on the 900,000 jobs in these industries that we all care so much about.

[Neil Parish]

We have been sleepwalking into this situation for several years now. We have been driving energy prices up and up, and not only industry but domestic customers are paying for that. It is time we got overall energy prices down, not just for high users, but for everyone.

[David Mowat]

I thank my hon. Friend for that intervention. To wrap up, in terms of our position on Europe, I believe we need to cut carbon. It is important, and I am not a sceptic on that stuff. My difficulty is with the idea that we have to cut carbon unilaterally. We are responsible for 1.5% of the world’s carbon emissions. We produce two thirds as much carbon as Germany per capita, and per unit of GDP. That is similar to Holland and lower than the average in the EU, yet we are pushing ahead with unilateral actions that come with a severe price. We need to think hard about that when we negotiate our way through this maze.

The points that have been made about complexity are absolutely spot on. Myriad complexities have built up in the attempt to keep a diverse set of technologies available, and those complexities are really mindboggling.

I have put points to Labour Members about solar, about their party’s position on the decarbonisation target and about the opportunity this afternoon to vote according to their feelings on an amendment that would increase electricity prices further in the UK. I will also make a few points to the Minister, which he may wish to address. We should look at our tendency to act unilaterally, hemmed in as we are by the Climate Change Act and the fourth carbon budget and all that goes with it. I ask that we get away from EU directives on renewables and the rest. Yes, Germany is big on renewables, but it has far higher carbon emission levels than we do because it burns so much coal, and because it is building 10 more unabated coal-fired stations.

[Joan Walley]

Is it not the case that Germany is having to rely on a greater amount of coal now, in the short term—

--- Later in debate ---

[Julie Elliott]

I thank my hon. Friend the Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) for his comments. He gives another example of how missed the regional development agency is in the north-east—in our region.

It is right that the Government are taking steps to help energy intensive industries that must adapt to the EU emissions trading system and the carbon floor price. We do not want to see the UK’s carbon emissions just shifted overseas. However, if we are to meet our emissions targets and avoid catastrophic climate change, we need to reduce those industries’ carbon emissions.

Energy intensive industries are an important part of our economy, accounting for 4% of gross value added, and 125,000 people are employed by them directly or in their supply chains. Many energy intensive industries are at the forefront of the low-carbon economy, producing the mechanisms that we need to develop our low-carbon industries. That was set out in great detail by my hon. Friend the Member for Penistone and Stocksbridge. However, like all sectors of our economy, this one must decarbonise if we are to meet our crucial emissions targets. The transition to low-carbon power generation will keep energy prices down in the long run. The alternative is to remain at the whim of unpredictable yet ever rising gas and electricity prices.

As the EEF, which was formerly the Engineering Employers Federation, has pointed out, if the Government were serious about the transition to a low-carbon economy, with innovation and green jobs at the centre of that transition, they would be supporting research and development. We question why research and development on energy as a percentage of Government R and D spending is comfortably less than the OECD average. However, the bigger problem is the Government’s counter-productive, counter-science and counter-business decision not to adopt a 2030 power sector decarbonisation target, which was supported by the EEF, which represents many companies in this area. That decision, or rather non-decision, is scaring away investment, costing green jobs and jeopardising our future energy security.

[David Mowat]

The hon. Lady mentions that the 2030 decarbonisation target was supported by many companies in this sector. Could she name the energy intensive companies in this sector that support that target?

[Julie Elliott]

Actually, I did not say that; I said that the target was supported by the EEF, which represents many companies in this sector.

The Government need to be clearer on how they will provide support for energy intensive industries. In his autumn statement, in November 2011, the Chancellor announced that measures would be introduced to reduce the impact of the Government’s electricity market reform policies on energy intensive industries. My hon. Friend the Member for Scunthorpe (Nic Dakin) set out many of the issues in this area. That announcement was made almost two years ago, yet energy intensive industries still have very little detail on how that will work in practice. Perhaps the Minister can enlighten us on that today.

I understand that the Government concluded their consultation on the exemption eligibility for contracts for difference costs in August. What progress has been made since that time? Exemption costs for contracts for difference will be collected through the supplier obligation. Can the Minister provide some more detail on that obligation?

I would not dream of asking the Minister to pre-empt what might be revealed in the autumn statement, but if it is the Government’s intention to introduce further compensation, could he provide an update on the Government’s negotiations with the European Commission, when he or his officials last met representatives of the Commission to discuss this matter, when he expects to receive a final decision, and whether there is a plan B in the event that state aid is not granted?

To conclude, I hope that the Minister understands the difficulties that many energy intensive industries are facing with the current tax regime and that he will listen to the concerns raised by hon. Members. I am sure that he will be acting to make changes in the near future. I also hope that he would agree with me that the single best way to reduce energy costs for intensive users is to give further support to low-carbon technologies, which provide the best solution to keeping costs down in the long run.