Energy-intensive Industries

David T C Davies Excerpts

Thursday 11th September 2014 Commons Chamber

[Alex Cunningham]

My hon. Friend gives a comprehensive summary of where I think we should be, and I hope to develop some of the points she made later in my speech. This is not just about the short term; it is about planning for the future as well.

Of course, the situation with regard to these energy costs is set to get much worse over the next decade. As I have said, the Department for Business, Innovation and Skills forecasts that UK energy and climate change policies will add around £30 to every megawatt of electricity for energy-intensive industries by 2020—substantially more than for any other country in the world.

[David T. C. Davies (Monmouth) (Con)]

I have a great deal of sympathy with what the hon. Gentleman is saying. Does he agree that it is now time to scrap these ludicrous carbon taxes?

[Alex Cunningham]

Carbon taxes have been imposed by consecutive Governments for very good reason, but if our industries are to be competitive, the time has come to examine them carefully and to determine how we go forward. This is not just about taxation, however; we must also take into account the issues that my hon. Friend the Member for Stoke-on-Trent North (Joan Walley) raised a moment ago.

Needless to say, the rise in energy costs is a huge threat to the energy-intensive sector, and it is one that the next Government must address. That brings me back to the trilemma that I mentioned. The present Government have designed policies that focus on reducing carbon emissions from industry, but those policies, influenced by regulatory activities in the EU, rely heavily on measures that seek to enhance energy efficiency while putting a price on industry’s carbon emissions. A cap-and-trade market for carbon was created through the EU’s emissions trading system, introduced in 2005. That market spans the EU and aims to reduce emissions at the lowest possible cost while incentivising low-carbon investment by making emitters financially liable for their emissions. It is intended that, from 2013 onwards, the capping level will fall by 1.74% a year for power stations and industry, so that total emissions are 21% lower in 2020 than they were in 2005.

The Government responded to industry concerns with a compensation package of £250 million announced in Budget 2011 for the period 2013-15, boosted by a further £150 million and extended to 2016 in Budget 2013. But, by December 2013, the emissions trading system compensation scheme had paid out only £18 million to 29 companies in the energy-intensive industries sector. Part of the problem is that although member states are permitted to compensate those at risk of carbon leakage arising from the emissions trading system, there is no obligation to do so. This results in energy-intensive industries being burdened with additional costs, be it through burning fossil fuels and buying allowances to match their emissions, or indirectly through the higher electricity prices that result from generators burning fossil fuels. As we know, the costs are passed on to consumers.

However, because the weak carbon price in the emissions trading system was deemed too low to incentivise lower-carbon investment, the Government then added a further policy cost to the price of energy by introducing a UK carbon price floor to top up the carbon price to an acceptable target rate. This undoubtedly limits the competitiveness of EIIs, many of which are unable to pass those costs through to their customers.

In my role as a member of the all-party group—not to mention as an MP representing an industrial centre—I have regular contact with those in the energy-intensive sector and frequently listen to the issues that they find themselves contending with. Through those conversations, I understand that no other country has imposed a policy similar to the carbon price floor here in the UK, nor are there plans to do so. It has been widely acknowledged that the carbon price floor does not, in fact, reduce emissions from power generation; those are capped at EU level. Instead, the carbon price floor significantly increases the proportion of decarbonisation costs that is borne by UK electricity users. Those are costs that drive investment decisions and can lead to companies relocating overseas rather than developing their businesses in the UK.

To be sure, the EIIs that I have spoken to strongly support the drive for greater energy efficiency. In many cases, energy efficiency is more cost-effective than subsidising low-carbon generation. For instance, GrowHow tells me that, since 2010, it has reduced carbon emissions associated with its main fertiliser product by 40%. By reducing nitrous oxide emissions, it has made savings equivalent to more than 4 million tonnes of CO_2, which means that, relative to its competitors, it is very efficient, and as much as three times as efficient as Russian producers.

Despite the fact that industry has delivered substantial energy and carbon savings over recent decades through investment and innovation, the cumulative impact of energy and climate policies is now putting extraordinary pressure on EIIs, necessitating continuous improvements in energy efficiency to remain competitive—although that is not to suggest that they are not doing that anyway.

Indeed, as industries approach the limits of what is realistically achievable with current technologies, the capacity of businesses to invest in the UK is ultimately undercut and the sustainability of the entire sector in the UK placed under threat. That, of course, brings with it the simultaneous possibility of the loss of jobs and investment to other countries with less vigorous climate change policies. That is disheartening, not just because of the obvious negative impacts for local economies and for the national economy more broadly, but because it overlooks the necessity to safeguard our existing industries and the employment they provide in order to make that all-important transition towards a low-carbon economy. Only through the continued provision of support to these industries can we hope to attract new investment.

We need look no further than Air Products in my constituency for an example of the types of investment in low-carbon industries that successful industrial clusters can attract. Shortly after committing to invest in building one of the world’s largest renewable energy plants on Teesside, the company announced investment in a second similar plant, influenced no doubt by the favourable business conditions that will see the wide availability of feedstock while allowing for local knowledge, skills and infrastructure to be used constructively and competitively. It speaks volumes that Sembcorp is developing with SITA a similar 35 MW plant on Teesside also to provide electricity from waste, further highlighting the potential for investment in the low-carbon economy that can result from the development of strong industrial clusters.

There can be no doubt that the Tees valley’s successful process industry cluster is central to the region’s position at the centre of the UK’s move towards a high-value, low-carbon economy, attracting significant investment over recent years and developing a reputation for green excellence. The area continues to work with government on a low-carbon action plan, on industrial carbon capture and storage, and on industrial heat networks as part of the city deal agreement, leading the way on bio-industries and energy from waste while increasingly being seen as a destination for green investment.

Such examples confirm the UK’s potential competitiveness on the international stage, but EIIs need access to secure internationally competitive energy supplies if they are to continue locating in the UK and investing in areas such as the Tees valley. That means having a level playing field for EIIs within the single EU market, taking account of the cumulative burden of climate policies on industrial energy prices. We cannot mistake the fact that the Chancellor deserves credit for capping the carbon price floor at £18 per tonne of CO₂ from 2016 to 2020 instead of allowing a linear rise to £30 per tonne by 2020, as was originally planned. Calculations indicate that such a move could save UK EIIs in the region of £4 billion over three years, but that cannot disguise the fact that industries are still exposed to an expensive unilateral tax and received no form of compensation for the first year of its operation. With the compensation being announced a few years at a time, there is no long-term certainty about business costs, which deters investment in the sector in the UK.

Estimates suggest that the carbon price floor has already added 5% to EIIs’ energy prices and budget reforms will cap the impact at 8% from 2016 to 2020. Although that is certainly an improvement on the original trajectory, which would have added 14% by 2020 and 26% by 2030, we must recognise that even after this modest reform UK industrial electricity users still face four times the carbon cost borne by EU competitors, let alone competitors outside the EU, which do not face carbon costs at all.

Similarly, EU energy and environmental state aid guidelines published earlier this year limit compensation for the impact of the Government’s carbon price floor on electricity prices, so it can be paid only to EIIs in sectors already eligible for emissions trading system compensation. The Government therefore have no legal means of compensating EIIs for the impact of the carbon price floor in sectors such as cement, glass and ceramics, even where clear evidence exists of energy intensity and risk of carbon leakage. So despite the fact that indirect emissions trading system costs to the cement sector during the period 2014 to 2020 are estimated at £82.7 million, and the cost of carbon price support over the same period is estimated at £104 million, the European Commission’s guidelines conflict with UK domestic policy to allow support against the carbon price support tax for the cement industry.

Incidentally, representatives from that industry have pointed out that cement did not make it on to annex II of the EU ETS indirect CO₂ aid guidelines because the tests that were applied were based on trade intensity of cement, which is currently only moderately traded, rather than the raw product before grinding—cement clinker—which is traded much more intensely. That leads to the conclusion that unless every EII sector is deemed eligible at the EU level for emissions trading system compensation, the only equitable solutions available to address this industrial competitiveness problem are withdrawal of the carbon price floor or efforts to reform the emissions trading system itself to encourage a stronger, more robust carbon price signal.

There can be no doubt that the UK must strive to avoid meeting its carbon targets by offshoring state-of-the-art energy-efficient EIIs. The objective must be sensible and economically sustainable decarbonisation, not de-industrialisation. In that respect, the UK’s status as the least energy-intensive economy in the G7 should perhaps be treated with caution rather than celebration.

We must think outside the box and look beyond punitive taxation schemes for alternative means to decarbonise, sending a signal to the rest of the world that it is possible to retain industry and decarbonise simultaneously and leading by example. A report last year by the American Chemistry Council found that 97 chemical industry projects worth a staggering $71.7 billion have been announced as a result of the US’s shale gas boom.

As a result of shale gas extraction, the price of energy and petrochemical raw materials in the US has plummeted, allowing a boom in the chemicals industry—so much so that INEOS tells me that the majority of its profit now comes from one-third of its business sales in the US. Although I am under no illusion that the UK will be able to replicate the US’s experiences entirely, extracting shale gas is likely to reduce energy and petrochemical raw material costs significantly. I also appreciate that fracking for shale gas is a controversial process and recognise the potential risks that it brings. But the appropriate response to concerns about the safety and environmental impact of shale gas extraction is to ensure that we have the right regulatory and monitoring framework in place. Any questions are best answered on the basis of evidence gathered from carefully regulated and comprehensively monitored exploration.

Although there is little prospect of fracking in north-east England, the abundant offshore coal reserves and potential for gasification present an opportunity to secure the future of EIIs—both in the Tees valley and the wider UK—while safeguarding thousands of jobs and helping to drive a much-needed economic recovery in the area. A failure to explore such options further would be an opportunity wasted.

Similarly, with the Tees valley already producing around 50% of the UK’s hydrogen and having an established hydrogen pipe network, the application of carbon capture and storage, as detailed in the region’s city deal, along with investments such as Air Products and the potential extraction of hydrogen from industrial sources mean that there is a significant opportunity to produce green hydrogen in Tees valley, which is capable of supplying the increasing demand for hydrogen fuel cells.

Our EIIs need support through this place, with a re-examination of taxes, carbon capture development and new energy sources. As recommended in the Environmental Audit Committee report, we need to set that path for maximum feasible decarbonisation, and I hope that we will do that soon.

--- Later in debate ---

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

I welcome this debate on energy-intensive industries, and I thank my hon. Friend the Member for Stockton North (Alex Cunningham) and the hon. Member for Redcar (Ian Swales), as well as the Backbench Business Committee, for securing it.

I also thank you, Mr Speaker, for your flexibility in enabling me to contribute. Unfortunately, constituency engagements mean that I might not be able to stay for the winding-up speeches. I apologise to the Minister and to my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) for that. I will read Hansard with increased interest.

I am keen to contribute to this debate because energy-intensive industries are such an important part of our economy, as my hon. Friend the Member for Stockton North said in his excellent opening remarks. They employ about 200,000 people directly in the UK and support 800,000 jobs throughout their supply chain. They are an important part of the real economy, particularly, I might say, outside the south-east. My constituency is home to several energy-intensive businesses, such as Michell Bearings, which has been in Newcastle since 1920. There are many more throughout the north-east.

If we can look back that far, 160 years ago the north-east—one of the most innovative regions in the world—was leading the UK into the first, carbon-based industrial revolution. Sir Charles Parsons established his engineering works in Newcastle and he invented the multi-stage steam turbine, which was the iPhone of its day and helped to power Britain into a new era. Mosley street in my constituency was the first street in the world to be lit with electric light—something to which we have become all too accustomed.

Newcastle university, also in my constituency, was founded on local strengths such as marine, electrical, civil and chemical engineering, as well as agriculture and medicine, and they remain key strengths of the city and the university today: global reach and local roots. Today, the region remains a global base for manufacturing innovation. It is the only English region with a positive balance of trade. As well as the industries and companies that my hon. Friend the Member for Stockton North spoke of, we have fantastic facilities such as the National Renewable Energy Centre in Blyth and the Centre for Process Innovation on Teesside, which were both set up with the help of One NorthEast—regrettably abolished by this Government. In Newcastle, we have recently opened the Institute for Sustainability.

Energy-intensive industries and carbon reduction are crucial to the north-east economy. There is not, and should not be, any contradiction between the two. The transition to a low-carbon economy is a huge opportunity for the UK, with the potential to be a major source of jobs and growth. However, that transition is being put at risk as a direct result of this Government’s failure to develop a long-term, sustainable energy policy. They have failed to get behind green businesses. The UK is falling behind with investment in green growth, meaning that jobs and industry that should be coming to this country are now going overseas. I have spoken to the senior management at companies that would prefer not to be named who have said that the lack of a clear long-term energy strategy is putting off investment that could create jobs tomorrow, next month and next year. That is clearly detrimental to our economy overall.

The lack of an overall energy strategy and an integrated strategy for supporting energy-intensive industries is putting jobs and investment at risk. Conflicting signals from this Government about support for green energy versus terminology such as “green crap”—I think that was it—has seen the UK’s attractiveness to renewables investors slide down international tables. If we want to support the real economy and to build a long-term, sustainable economic environment, businesses need to know what they can expect from Government. They need long-term regulatory and policy certainty, and they are not getting that from this Government.

As my hon. Friend said, the carbon price floor was intended to create a floor underneath the EU emissions trading scheme, but since the collapse of the ETS price, energy-intensive British firms have been faced with far higher energy bills than European competitors. We need to know how Government are going to support these vital industries over the next five, 10 and 20 years, because that is the kind of life cycle they have for building plant and investing in countries. We need a long-term energy policy that supports and drives green growth and creates jobs in a low-carbon economy—a policy that gives investors the certainty and confidence they need to invest by committing to decarbonising the power sector by 2030. Yet as a direct result of this Government’s mixed messages, we are falling behind.

I have always considered myself a champion of new technologies in this House and elsewhere. When energy-intensive industry representatives first spoke to me of their concerns about some of the Government’s energy policy, I asked them what they were doing to improve their energy efficiency. Were they, for example, asking the Government and policy makers to subsidise obsolete industrial processes? Following further investigation, I was made to understand that many of the processes related to reducing energy consumption and improving energy efficiency are reaching the limits of the laws of physics. I am sure we are not all as familiar as we perhaps should be with the periodic table and the chemistry education we received, but I think we can all understand that a certain amount of energy is needed to change the state of molecules and to change gas to liquid. We have made so much progress in the efficiency of many such processes that it is not possible to go further. Given that so many of the processes are essential to our manufacturing base and a balanced economy, it is unarguable that they need to be supported during this transition.

The energy costs of energy-intensive industries can be more than three quarters of their addressable costs, and they are often already operating in highly competitive markets. There is also already a considerable incentive for them to innovate and become more energy efficient.

The industries need support from Government and a clear, long-term direction of travel. They need action in a number of areas, including fixing the broken energy market, as Labour has promised to do; exploring new sources of green energy, such as clean coal; and specific and long-term support so that they can continue to compete internationally.

In government, the Labour party was more courageous in this area than many others. The Climate Change Act 2008 made us the first country in the world to introduce a legally binding framework to tackle climate change.

[David T. C. Davies]

I am listening with interest to the hon. Lady, but does she not agree that the Climate Change Act is actually one of the reasons why we got ourselves into this awful situation in the first place? We are taxing industries in order to try to solve a problem that I am not even sure exists.

[Chi Onwurah]

I thank the hon. Gentleman for his intervention, but his final comment gave away his position. He said that we are taxing a problem he is not even sure exists, but the consensus on the need to address climate change is global and we certainly owe it to our children and our children’s children—[Interruption.] The hon. Gentleman is chuntering, but I am afraid I cannot follow him. The Climate Change Act is not responsible for climate change; it is a response to climate change and one that is necessary for the long-term sustainability of our economy and the global economy.

--- Later in debate ---

[Angela Smith]

My hon. Friend the Member for Stockton North made the point about shale gas, which gives us the potential to supply a good, domestic feedstock for the chemical industry. It would be more efficient and better for us all round for that feedstock to be delivered throughout the UK, rather than having borders between Scotland and England. That is an obvious point, but it is important to put it on the record.

The definition of “foundation industry” varies, but broadly we mean steel, cement and lime manufacturing, chemicals, ceramics, glass and paper. The contribution those industries make to key economic activities such as transport and construction is fairly obvious, but their importance in other ways is often overlooked. For instance, the chemicals industry has contributed to the growth of food manufacturing in this country, and chemicals will continue to be important for agricultural use and in ensuring that we maintain a healthy food production capacity in this country. We thus realise how apt the term “foundation industry” is, as they are key industrial sectors.

At a conservative estimate, those industries make a contribution of roughly £15 billion to UK GDP per annum. Depending on the definition of “foundation industries”, their combined turnover varies between £70 billion and £95 billion per annum. They provide 11% of the UK’s gross value added. Their contribution to UK export capacity is very significant: they contribute at least 30% of our export capacity, but I have read somewhere that it could be as high as 54%. Again, that depends on the definition of “foundation industry”.

The foundation industries have a strong research and development profile, which is often underestimated and overlooked in terms of their importance to the UK. The future of the sectors is dependent on high-quality research and development profiles, on significant investment, and on ensuring that we stay ahead of the game in manufacturing capacity and at the high-value-added end of the manufacturing spectrum.

I pay tribute to the first of the catapult centres developed in the UK—in south Yorkshire, at the advanced manufacturing park at Catcliffe—more than 10 years ago by Yorkshire Forward and others in Sheffield and Rotherham. The park is focused on engineering, particularly steel engineering, and is going from strength to strength. A partnership in Sheffield between Boeing, Rolls-Royce, the university of Sheffield and Sheffield Hallam university is building a brand new factory, Factory 2050, alongside the original buildings, and is now investing heavily in research into nuclear capacity. It is a highly successful venture that provided the blueprint for the Government’s catapult centre strategy.

As a Sheffield and Barnsley MP, I am incredibly proud of the innovative work done in south Yorkshire in using the concept of catapult centres to promote the collaboration between academic institutions and our manufacturing centre to make us world class in innovation and the development of new technologies. Our foundation industries are also at the forefront of work force investment. They have a good record on paying their work force well—these are good jobs—and investing heavily in apprenticeships and ongoing professional development training. The country needs more of that. In many cases, our foundation industries provide a good example of best practice.

My constituency has many foundation industries within its borders. Fox Wire produces world-class cabling for the oil industry and many other applications. Tata Speciality Steels provides steel for the aerospace industry and is at the top end of steel manufacturing in this country. In fact, one reason it is headquartered in my area is that it cannot find elsewhere the skill sets it needs to maintain its position as the best in steel manufacturing. We are very proud of that. In addition to those industries, British Glass is headquartered in my constituency, and I also have cement, paper and ceramic interests, so I represent a range of manufacturing interests.

One of the ceramics companies in my constituency, Naylor, is a family company, not foreign-owned, and has been in existence for more than 100 years. Only this week, it secured six-figure funding towards a £2.5 million project to increase capacity, while reducing energy consumption, at its Cawthorne factory in my constituency, through a combination of smart metering and an in-house plastics reprocessing plant to make use of its own waste on site. There are limits to what can be done to reduce energy consumption, but these are practical, innovative ways of continuing to reduce energy use. In addition to energy efficient lighting, a new energy efficient kiln and dryer has created extra capacity, while reducing energy costs, and led to 30 new jobs. I am proud of Naylor. This superb company is increasing its exports profile and winning awards all over the place, while being dedicated to reducing its carbon footprint—because it makes financial sense. I think the hon. Member for Redcar made this point. The industry is already incentivised to reduce its carbon footprint because it will make business more efficient and cost-effective.

Briefly, Sheffield city region provided some of the funding for that project, which is a tribute to an important element in the ongoing constitutional debate—local decision making. We need some devolutionary thinking on getting investment in manufacturing in the rest of England, never mind the other constituent parts of the UK.

Industry is committed to reducing energy use. For example, Celsa, a recycled steel plant in Cardiff, is one of the most energy and labour efficient plants in Europe, and we have seen significant reductions in electricity consumption by the steel industry in the past 30 years. The figures are startling. I do not have them to hand, but the electricity consumption of steel making in my city has gone down significantly in the past 30 years. On that point, will the Minister respond to the request by steel makers across the UK that the Government reconsider the advanced capital allowances for energy efficiency? The scheme is based on generic lists of technologies and excludes the more specific but often large energy efficiency opportunities that our foundation industries want to engage with. I would be interested to hear whether the Treasury is prepared to reconsider that scheme and take the common-sense approach of applying it to these large-scale energy efficiency projects.

The role of foundation industries in developing a green economy should not be overlooked, as I said in an earlier intervention. I was not saying that we should move faster than the rest of Europe; in some ways, I was making the reverse point. We must be careful not to damage the competitiveness of the foundation industries in this country, precisely because they are critical to delivering the green economy we need, not just in the UK but across European and globally. We know that the foundation industries have an important role to play in developing renewable energies, such as carbon capture and storage, and we know that they play a valuable role in the production of energy-efficient construction materials, particularly in respect of chemicals. The chemicals sector is doing a good job of developing wonderful new materials for use in construction projects, not just for commercial but for domestic building, as I saw when I visited a research project at Nottingham university involving several chemical companies, including BASF. That project is doing impressive work to cut the carbon footprint of domestic building projects and to cut energy costs across the board, especially for home owners.

British Glass is developing new trading standards and is keen to see glass play its part in developing a green economy, and new glass technologies are being developed all the time. Let us not forget either that wind turbines require a lot of steel in order to help reduce our carbon footprint and produce green energy. The steel industry also points out that the development of the lightweight vehicles we increasingly see on our roads is largely down to work by the steel industry to reduce the weight of construction materials. The foundation sectors are doing a great deal of work to develop the green economy, but the costs being incurred by our industries as a result of our carbon-intensive industrial past must not be forgotten.

We are now paying the clean-up costs of an industrial legacy that has left many of our environments badly degraded. As an example, the water industry in Yorkshire has to pay out millions of pounds a year to clean up the water collected from a catchment that is badly degraded—by peat degradation. The water must go through multiple processes to remove the peat before it can be put into our catchment and our networks. A great deal of work is involved, and we have to recognise that the industry is paying the costs of carbon pollution in the past. That should not be overlooked when we reflect on the arguments in favour of transitioning to a green economy. It is very short-sighted to argue that the green economy is not important to our future; it quite clearly is.

Let me move on directly to the impact of carbon taxes and levies on our foundation industries. My hon. Friend the Member for Stockton North made the point, which should be reiterated, that Tata Steel, for instance, has estimated that year-ahead wholesale electricity prices are 70% and 45% higher than in Germany and France respectively. That is driven in large part by policy-driven taxes and levies for the most intensive users; those were 2.5 and 6.5 times higher than in Germany and France respectively in 2011.

The British Ceramic Confederation has pointed out that DECC’s own analysis shows that climate-related charges are already 19% of the industry’s base load price, which will rise to 47% in 2020. The manufacturers’ association EEF has stated that the Government’s own estimates indicate that industrial electricity prices will increase by 50% by 2020 and 70% by 2030. Moreover, Tata Steel is clear that the levies with the greatest impact today are the renewables obligation and the carbon price floor. The company also points out that many of its steel competitors in Europe will either be completely exempt from many of the levies or have their charges capped.

As far as I am concerned, the Government’s recognition of the damage inflicted on our manufacturing sector by the carbon price floor is most welcome, but why on earth they introduced the floor price in the first place remains a mystery. As I say, we welcome their acknowledgment in this year’s Budget of the mistake made. The proposals laid on the table represent something of a step forward in resolving the issues, but they do not resolve all the issues related to the imposition of the carbon price floor in particular on our sectors.

The 2014 Budget announced that the carbon price floor would be frozen at £18.08 from 2016-17 to 2019-20, saving all UK business an estimated £4 billion over three years. The Government will review the carbon price floor beyond 2020, once the impact of the reform of the EU emissions trading scheme is clear. They are extending existing compensation for CPF and ETS for 2019-20 and we of course have the compensation package in place.

It is my understanding, however, that the compensation package is underspending, so the Minister, who until a moment ago was busy on her mobile phone, might like to concentrate on providing an explanation of why the Government are underspending on their compensation package to industries that desperately need to see it delivered. She needs to explain, too, why it continues to be the case that the UK does not appear to be punching at its weight when it comes to making the case to Europe that more of our foundation industry sectors should be included in state aid guidelines. [Interruption.] I am sorry, but the Minister should realise that this is not a laughing matter.

We need to know why the Government are not working harder to make the case to Europe that more of the sectors affected by the carbon floor price should be included in European state aid schemes. That is at the heart of this debate. Sectors such as ceramics make intensive use of electricity—use of the electric arc furnace is not confined to the steel industry; it is used in ceramics, too—yet the ceramics sector has been almost entirely excluded from the compensation on the table at the moment. The Government should explain that, or at least make a commitment to ensure that that unfairness in the compensation schemes on the table is removed as soon as possible.

We need to see a commitment to introduce the announced mitigation measures for the renewables obligation as soon as state aid approval has been granted by Brussels. As I said, we also need to see a commitment to ensuring that the sectors included in state aid are extended as soon as possible. We need an approach that gives specific consideration to premier league energy-efficiency projects, or incentive schemes such as the enhanced capital allowances that I mentioned. We need to see UK support at the October European Council meeting for including the principle of the continuance of robustly protecting the competitiveness of the sectors most at risk at the level of best performance. We need to see, too, a commitment from the Government to support the industrial strategies developed by the foundation industries, such as the chemistry growth partnership and the developing UK metals strategy.

Finally, I want to hear the Minister’s response to the argument that a consolidation of the taxes and levies on the table at the moment would be a sensible way forward. A significant number of taxes and levies are being placed as a burden on our foundation industries. Indeed, one company in my constituency has to employ a highly skilled individual full time just to deal with compliance with the range of levies and taxes that need to be delivered year on year. The Government need to think again about the impact on industry of having to work through so many different schemes and so many different levies year on year. Nobody is arguing against the principle of carbon taxation—

[David T. C. Davies]

indicated dissent.

[Angela Smith]

That might not quite be comprehensive, but most Members in the Chamber today agree with the principle of carbon taxation. What we want is sensible carbon taxation, delivered efficiently but at the same time ensuring that we have a level playing field with the rest of the European Union. That is not the case at the moment. I hope that the Minister has listened carefully to what has been said, and that she will come up with some constructive responses in her speech.

[David T. C. Davies (Monmouth) (Con)]

The hon. Member for Penistone and Stocksbridge (Angela Smith) has just said that nobody will argue against the principle of carbon taxation. First of all, I am going to argue absolutely against the principle of carbon taxation, and I shall briefly set out why. It is interesting to note that while not many people will argue against that principle, everyone in the Chamber has been arguing about the practical consequences of carbon taxation.

It was wonderful to listen to the speech made by the hon. Member for Stockton North (Alex Cunningham). If I had shut my eyes, I might have believed that I was at a meeting of the Global Warming Policy Foundation, as he delivered a damning critique of the effect of the taxes that have been levied. He set them out far better than I could, but the point is that levying unilateral taxes on our manufacturing industries is absolutely crazy. It simply means that business goes elsewhere, to other countries, and the same amount of carbon dioxide gets pumped out into the atmosphere, so there is no particular benefit, if indeed there would be any benefit from reducing carbon dioxide; that companies are far less willing to come into the UK, because they do not know what our energy policy is; and as the hon. Member for Penistone and Stocksbridge has just pointed out, that many companies are having to employ people in order just to comply with all the taxes that are being introduced.

I look forward to hearing the speech of my hon. Friend—indeed, my friend in all senses of the word—the Member for Witham (Priti Patel). She certainly cannot take the blame for any of this, because she has only recently become the Minister. I am sure that she will take a very sensible view, and I am confident of her desire to support the UK manufacturing industry. However, I have no doubt that she will point out to us, as others have already, that the Chancellor has taken steps to cap the carbon price floor at £18, and that the compensation scheme will be extended.

We have all got our knickers in a twist. Having levied all sorts of taxes on our manufacturing industries, we are now going around saying “Hang on a minute, these taxes will damage these industries, so we will provide some compensation, but not for all of them, just for some.” So steel gets a bit of compensation, and cement and pottery do not. It is all done in a random fashion.

Surely there is a basic, fundamental question that we should be asking. If we all agree that these taxes are bad—and I think we do all agree that they are bad, or we would not be providing compensation in some instances—why bother with them in the first place? It does not make any rational sense to levy a load of taxes on carbon-producing industries and then give some of those industries some of the money back, but not quite enough. That, to my mind, is completely and utterly irrational.

The elephant in the room, however, is global warming. No one wanted to talk about that, but the whole rationale for these taxes is that we are going to stop runaway global warming. Why does no one mention it, given that it is the root cause of all these carbon taxes? We need to start thinking about the rationale for them, because there has been no increase in temperature since 1998. No one disputes the fact that carbon dioxide is a global warming gas—it is a scientific fact—and no one disputes the fact that there has been an increase in temperatures over the last 200 years, although the increase is less than 1° C; in fact, it is about 0.8° C. It is reasonable to assume that some of that increase is a result of the carbon dioxide that has gone into the atmosphere. However. it is equally reasonable to assume that not all of it is, and even that not much of it is.

At the time when we were becoming industrialised, we were coming out of a very cool period, the “little ice age”. We have always experienced fluctuations in temperatures. It was warmer in Roman times, it got cooler in the dark ages, it got warmer again during the mediaeval period, and then it got cooler again during the little ice age. Some of the very small increase in temperatures that we have seen is no doubt due to perfectly natural fluctuations, and that is borne out by the fact that there has not been a straightforward increase in carbon dioxide and temperatures. Between 1940 and 1970 it was getting colder, despite the increase in carbon dioxide going into the atmosphere, and since 1997 there has been no increase in temperatures. I asked the Met Office and environmentalists, who thoroughly support these green taxes, “How long must we have no increase in temperatures before you start to think again about the taxes that you want us, the Government, to levy?” The answer from the Met Office was “Another 50 years”, but it will be too late for all these industries in 50 years’ time.

[Angela Smith]

The hon. Gentleman clearly did not listen to my illustration of how careful we must be about swallowing that kind of argument. The water industry in my constituency is paying the cost of having to clean up pollution in the local water supply, which is a result of almost 200 years of unregulated industrial activity that badly polluted the catchment area from which we take our water. Does that not indicate to us that we must be careful about how we look at the future of industrial and energy activity in the UK?

[David T. C. Davies]

It indicates to me that we have got our priorities wrong. We certainly should be looking at water, and we should be looking at chemicals, but the hon. Lady is making the mistake of thinking that carbon dioxide is some sort of poison which should be equated with whatever chemicals were put into the water supply. Carbon dioxide is a perfectly natural gas, and it is vital to growth. Without carbon dioxide, we would not be able to grow anything at all, and it is far from certain that carbon dioxide is responsible for the 0.8° rise in temperature. We can only say that it is responsible for a small amount.

Let us be honest. We have a sort of pseudo-religion of global warming—no one can even begin to question it—and the Intergovernmental Panel on Climate Change publishes the bible of that pseudo-religion in the form of the report that it produces every couple of years. In its latest report, the IPCC itself says that it can only state with certainty that half the temperature increase in the second half of the 20th century is due to man-made carbon emissions. Well, in the second half of the 20th century the actual increase in temperature was 0.5°, so what the IPCC is saying is that it can only state with certainty that man is responsible for a 0.25° increase, which is about a quarter of the figure that we are constantly given. So what is the problem that we are trying to address with all these taxes on our industries?

I have the greatest respect for the Minister, and, as I have said, I am absolutely confident in her ability and her desire to support manufacturing industries. I suspect that she may share some of my concern, shall we say, although I will not embarrass her by putting her on the spot with comments like that. But I hope that she is taking note of something here. The reality is that Members in all parts of the House want to distance themselves from the consequences of policies that they themselves have called for.

A few years ago, no one was more enthusiastic about green policies than Opposition Members. What about that Liberal Democrat Member? I have forgotten his constituency now, but he is not in the Chamber. He was the most enthusiastic of all, constantly championing green policies, yet it was he who drew our attention to the fact that manufacturing companies in this country were paying twice as much as the Germans for their energy. Perhaps he is another one who should be invited to the Global Warming Policy Foundation some time. I think that if the hon. Member for Brighton, Pavilion (Caroline Lucas) had a steel factory in her constituency, even she would probably be whingeing and whining about the taxes that she herself had enthusiastically called for. None of these people will support the Front Bench when it comes down to it. They call for green taxes, but they do not want the consequences. The level of hypocrisy that comes out of the green movement is absolutely astounding.

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

I fear that the hon. Gentleman has misunderstood the subject of the debate, which is, specifically, carbon taxes on energy-intensive industries. Those taxes have not been supported by Greenpeace, and are not considered to be green taxes at all.

[David T. C. Davies]

Greenpeace does not support anything as far as industry is concerned. None of the environmental groups do. They call for us to decarbonise completely, but whenever we offer them some handy solutions—such as nuclear power, which generates large amounts of electricity without carbon dioxide—they do not want to know. And what about shale gas? I was interested to hear the hon. Member for Penistone and Stocksbridge call for us to export it, as well as mentioning a company in her constituency that supports nuclear. Exporting shale gas is a good idea. It produces half the amount of carbon dioxide that is produced by coal, and it is vital for the wind industry that we have gas to back it up. However, the greens do not want to know about that. What about the Severn barrage, which was proposed in my constituency? I would have some concerns about the cost, but I believe that it would generate 20% of the UK’s electricity supply without any carbon dioxide. The greens are more worried about the fact that some wader birds would be inconvenienced. They have wings—they could fly somewhere else—but the greens do not want to know about it.

My point to the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) is this. She will never, ever satisfy the green movement. Let us forget about pandering to the green movement. Let us forget about pandering to all those who call for carbon taxes and who are a little more sensible, such as Opposition Members, because they will not support the consequences either. Let us remember that, at this moment in time, it is not the meteorological climate that we need to worry about, because that has not changed for about 18 years. It is the economic climate that we should be concerned about.

I hope, and I am sure, that the hon. Lady will champion Britain as a great place in which to do business, and a great place to which to come and make things, and will do something about these ridiculous green taxes, which do not just need to be scaled back—I will not use quite the words that were used by the Prime Minister, although I welcomed them greatly—but need to be completely scrapped.