Energy-intensive Industries

Debate between David T C Davies and Angela Smith

Thursday 11th September 2014 Commons Chamber

[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.