Energy Intensive Industries

Lord Barker of Battle Excerpts

Monday 25th March 2013 Commons Chamber

[The Minister of State, Department of Energy and Climate Change (Gregory Barker)]

I congratulate the hon. Member for Corby (Andy Sawford) on securing this important debate. Without, in any way, wishing to sound patronising, may I say that that was a very good speech, and for someone who has been in the House for only a few months, It certainly augurs well for his career.

Let me say at the outset that I would be delighted to visit Corby. I think there had been an invitation from his distinguished predecessor but it fell with the by-election. I would be happy to visit Corby, not least as the Minister with responsibility in the Department of Energy and Climate Change, but also, wearing my other hat in government, as the Minister for business engagement with India. I am a huge admirer of the extraordinary achievements of the Tata group. I regularly meet its people, from both the steel part and the other parts of the company, but I have not yet had the opportunity to visit the Corby steel plant, so I would be happy to explore how I can find a date to do so.

I welcome this debate, not least because our energy-intensive industries make an important contribution to the UK economy and it is vital to keep them competitive. These industries are also vital to regional economies, particularly because, as the hon. Gentleman pointed out, not only do they support jobs—good, well-paying, satisfying jobs that people can build careers on—but their products are important in the transition to a low-carbon economy. Some people might think it strange that, as the Minister with responsibility for tackling climate change, I have made a point of making the case for recognising the contribution that energy-intensive industries make to our economy and urging that they get special treatment, but I see no contradiction in that at all. I have made it clear since coming into this job in 2010 that we take the challenge of decarbonising the economy very seriously and are determined to deliver our commitments, in line with the Climate Change Act 2008, which was passed under the previous Government. However, we are equally clear that decarbonisation must not mean de-industrialisation. On the contrary, if we are going to build the low-carbon infrastructure—the renewable energy assets—that we need in the UK, we will need to bring forth a new age of engineering. There are huge opportunities, in not only steel, but a range of sectors that are necessarily energy-intensive. There are huge opportunities to become more energy-efficient, to drive innovation and to become more competitive, but these industries cannot subvert the laws of physics. There is only so much that many of them can do.

I was told when I first came into the job that those industries were not suffering in quite the way they suggested and that the playing field with Europe was not so uneven, but I was continually lobbied by a number of industries, not least the ceramics industry, which does a very good job, and decided that I would only get to the bottom of it if I went to Germany myself. It is no coincidence that Germany, which over the past decade has seen a massive increase in its share of the global market for manufactured goods, particularly those from advanced manufacturing, saw at the same time a massive deployment—probably the largest single deployment in Europe—of renewable energy. The two have gone neatly hand in hand, and Germany has managed much more effectively than we have to ensure a better balance of policy, supporting the deployment of renewables with the necessary subsidy to drive those nascent industries to cost competitiveness with their fossil fuel equivalents while being sufficiently differentiating in its approach to protect energy-intensive industries.

There is a fundamental difference, however. In Germany, as I found out, the burden of policy falls overwhelmingly on the consumer, not on industry. The balance is completely different from that in the UK. The hon. Gentleman rightly pointed out that €5 billion supports the energy-intensive industries in Germany, but replicating that model in full here would entail a considerable rise in consumer bills and I am sure that he would not advocate that.

We are constrained, particularly in light of the deficit we inherited and the absolute imperative of bringing down the national debt, but we are determined to be as flexible as possible. That is why when I came back from Germany—I went there with a number of major energy-intensive companies, visited the plants and spoke to German policy makers—I lobbied hard within Government to make the case for greater differentiation for the energy-intensives. That, along with the efforts of other colleagues, resulted in the £250 million package.

This is a coalition Government who understand the imperative of supporting appropriately our energy-intensive industries, but I do not pretend that £250 million is the last word or is even enough in the longer term. The fact is that if we are to support our energy-intensive industries and watch those manufacturers grow, they will require more support. I have made it very clear that the £250 million is the first step in a longer term programme of support recognising the need for greater fiscal differentiation, but it must be aligned with our deficit reduction programme.

I cannot tell the hon. Gentleman the details from the Dispatch Box this evening, but I can reassure him that we will shortly announce the outcome of the BIS-led consultation on the £250 million package. That will include the technical details, including the emissions factors that he was seeking. We must also still obtain state-aid clearance from the EU for the carbon floor price consultation. In addition to that and the EU emissions trading scheme, we are seeking permission from the EU to begin to put the building blocks in place for a more German-style approach to the architecture. Following the consultation with stakeholders, which closed in December, we have been analysing responses to ensure that compensation is targeted at those industries that are most at risk of carbon leakage, subject to final state-aid approval. As I have said, we will publish those results shortly. As set out in the Energy Bill, we will introduce an exemption for energy-intensive industries from the costs of contracts for difference under electricity market reform, again subject to consultation and state-aid clearance.

In the Budget the Chancellor was able to go further and to take another step towards building a more differentiated package, with the announcement of an exemption for mineralogical and metallurgical processes from the climate change levy—the ceramics sector. That is allowed for under the energy taxation directive.

[Jeremy Lefroy (Stafford) (Con)]

In Staffordshire, the news in last week’s Budget was received with great joy. The hon. Member for Stoke-on-Trent Central (Tristram Hunt), my hon. Friend the Member for Stone (Mr Cash) and many others have been fighting for the measure, but it was great news and well received.

[Gregory Barker]

I am glad to hear it. My hon. Friend’s representations played a part in the decision, but he is absolutely right; a number of hon. Members made the case. I have been to Stoke to see factories there and the challenges they face.

The measure will mitigate any competitive disadvantage that the UK mineralogical and metallurgical sectors face. It will help them to move to a more level playing field with their EU competitors. It also supports the Government’s growth agenda and our commitment to ensuring that manufacturing remains competitive during the shift to a low-carbon economy.

Industrial energy efficiency has a strong role to play. We cannot defy the laws of physics, but industrial energy efficiency represents a huge opportunity for UK plc to improve its international competitiveness. It is good for growth and competitiveness, and it drives our energy security. It is also key to managing costs and building margin growth. The Government are supporting industry to implement energy-efficiency measures that will help to reduce the impact of rising energy prices on industry.

We recently published our energy-efficiency strategy, which sets out our commitment to seizing the energy-efficiency opportunity, accelerating the deployment of 21st-century energy-saving measures. We will do that by connecting energy-efficiency knowledge and technologies to finance, seeking strong returns; supporting energy-efficiency innovation; harnessing the power of improved energy-use information, driving its availability and disclosure; and encouraging collective action on this new and better information.

We recognise the need to minimise regulatory impacts on industry. We have taken steps to simplify our key schemes on energy efficiency and carbon reduction. We have taken measures to simplify climate change agreements, the carbon reduction commitment and the EU emissions trading scheme to remove overlaps and reduce administrative burdens. Actions we have taken include consulting on and simplifying climate change agreements and introducing an opt-out for the EU emissions trading scheme for small emitters and hospitals. We have consulted on a process for the simplification of the CRC and on new regulations to implement the EU emissions trading scheme in the UK from this year.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

The Minister is listing the many causes the Government are taking up on behalf of energy-intensive industries, but is there not a distinct lack of industrial activism? We are looking at significant structural contracts in Scotland and in Merseyside, but the British steel industry is losing out. In my area, we recently saw the loss of a potential carbon capture and storage project for Wilton, which would have added at least 30 years to existing infrastructure in the chemical industry there.

[Gregory Barker]

The hon. Gentleman is right to a certain extent. There are big challenges and we cannot turn around a supertanker in a short time. We have seen a consistent decline in manufacturing capacity in the past decade, and before then, but we are beginning to see a rebalancing of our economy. In the renewables sector, a great deal more of the equipment required, for example, for the massive expansion of offshore wind, has begun to be fabricated and manufactured in the UK, particularly along the east coast.

[Tom Blenkinsop]

I am grateful to the Minister for giving way again. On the issue of offshore wind, recently at Redcar contracts were promised with Tata Steel to provide the base structures and with TAG Energy Solutions in Billingham to provide the monopiles, but both lost out to foreign competitors. What are the Government doing proactively with industry to roll up their sleeves and get involved so that industry can win those contracts?

[Gregory Barker]

I can tell the hon. Gentleman that he is wrong about TAG; it has won a significant order, which was secured after a personal intervention by the Minister at the Dispatch Box. I spoke directly to the board in Germany, and intervened actively on industrial policy. I am therefore glad that he raised that issue, as TAG has a big manufacturing future ahead of it.

We accept that large energy-intensive industries in Europe benefit from tax rebates and other exemptions, which means that their prices are significantly lower than the average for their country. However, it is important to remember that many of the exemptions applied to those industries have distributional impacts. If industry does not pay them, other electricity consumers need to pay more. As the Minister responsible for fuel poverty, I have to bear in mind those distributional impacts and fairness for those who pick up the bill.

May I say something briefly about gas security, which is topical, particularly given what has appeared in the newspapers over the weekend and the cold snap that we are suffering? We are aware of industry concerns about current high gas prices and low storage stocks, but while high prices in a spike are uncomfortable, they are a sign that our market is working and that we are attracting the gas that we need through a diverse range of infrastructure. Price volatility is not something that we can completely remove, and nor should we seek to do so, from our market. It is the key mechanism that enables our market to balance efficiently at the lowest cost to consumers, and it incentivises investment in new infrastructure such as storage.

Our market is resilient to global events, and has spare import capacity built in. However, we take gas security and the risk of harmful gas spikes seriously, and we are determined to do more. We are working with Ofgem to review our market arrangements, to ensure that they continue to provide secure supplies to consumers at a fair price. At the same time, we are diversifying our energy mix to reduce our dependence on imported fossil fuels, and have put in place robust policies to cut energy demand.

In conclusion, I very much welcome this debate on energy-intensive industries. I commend the hon. Member for Corby on making a compelling case. He is right to hold the Government to account on this issue, but I can assure him that we take it absolutely seriously. We are determined to do more within the context of the difficult economic and fiscal situation that we inherited, but we recognise the benefits of acting now to ensure that we maintain these industries at the same time that we build a secure low-carbon future. Those policies are designed to deliver efficient, low-carbon, secure and affordable energy supplies.

Question put and agreed to.