Energy-Intensive Industries

Lord Evans of Rainow Excerpts

Thursday 10th March 2016 Westminster Hall

[Graham Evans (Weaver Vale) (Con)]

I beg to move,

That this House has considered energy intensive industries.

It is a privilege to serve under your chairmanship, Mr Chope.

Energy-intensive industries are defined in the 2000 EU regulations on pollution prevention and control and further directives as companies whose energy intensity is more than 3%. This means that their energy costs are at least 3% or more of their total production costs. However, it is important to note that the figure is often significantly higher than this. For example, electricity accounts for 70% of chlorine production costs at the INEOS Runcorn site in my constituency. The companies that tend to fall into this bracket come from a wide range of sectors, including chemicals, steel, paper, minerals, glass, ceramics, and industrial gases, among others.

Protecting the competitiveness of the UK’s foundation industries is vital to our long-term economic success. Energy-intensive industries account for 4% of the UK’s total gross value added, directly employing more than 200,000 people. These foundation industries are crucial to the success of other companies through their supply chains, meaning that the multiplier effect on economic growth and jobs is far greater. In a report for the CBI, Tata Chemicals estimated that for each direct job it creates, a further five jobs are created in the supply chain. These are often high skill, high wage jobs that are vital to the future prosperity of the UK economy.

Energy-intensive companies, much like other industries, draw competitive advantage from clustering. This is a result of the existence of a pool of specialised workers, the provision of specialised suppliers, and the rapid flow of industry-specific knowledge among firms. As a consequence, regional economies can often be heavily dependent on a small number of energy-intensive firms in the area. Because energy-intensive industries compete globally, their export success is critically dependent on secure and competitively priced energy supplies.

UK industrial energy prices are the most expensive in Europe: 75% higher than Germany; 45% higher than France; and nearly 80% higher than the EU average. Energy-intensive industries are typically paying between £80 to £90 per MWh for electricity. Of this, £14 is attributable to the cost of carbon through the EU emissions trading scheme and the carbon price floor.

A further £20 goes towards the cost of renewable subsidies, such as the renewables obligation and the feed-in tariff. The UK-only carbon price floor results in UK-based energy-intensive companies paying four times the cost of carbon paid by their continental competitors such as France or Germany. The Department for Business, Innovation and Skills has been paying compensation since 2014 to lessen the impact of the EU emissions trading scheme and the carbon price floor. This support is limited to 80% of the impact by EU state aid rules.

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On resuming—

[Graham Evans]

I welcome the announcement in the autumn statement last year that energy-intensive industries will be exempt from the policy costs of the renewables obligation and feed-in tariffs, which will ensure that they have long-term certainty and remain competitive. Energy-intensives whose electricity costs exceed 20% or more of their gross value added are eligible for renewables compensation, capped at 85% of the impact by the EU state aid rules. However, I am concerned that energy-intensives that fail to meet the 20% criterion and therefore do not receive the compensation are often in direct competition with others that meet the criterion and do receive it. That puts some companies at a profound competitive disadvantage. Officials at the Department for Business, Innovation and Skills are exploring the feasibility of alternative options to support those companies, which is a welcome development. I look forward to the results of that.

I represent a constituency in Cheshire, where the energy-intensive chemical industries are of historical significance. INEOS Chlor and Tata Chemicals, among others, are significant employers of people in Runcorn and Northwich, and in the wider M56 corridor throughout Cheshire. Chemistry is the bedrock of manufacturing, and strong, competitive chemical industries underpin all great manufacturing nations in the developed world. The UK chemical and pharmaceutical industries have a strong record of manufacturing.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

Is my hon. Friend aware that the shale gas industry has revolutionised the fortunes of the chemicals industry in the US? According to PricewaterhouseCoopers 1 million jobs will be created in manufacturing by 2025 as a direct result of shale gas energy and associated chemical feedstocks.

[Graham Evans]

I am grateful to my hon. Friend, who has certainly made his mark on this place since he was elected. He is right; the east coast of America is an example of how countries can reinvent themselves as manufacturing nations.

The chemical industry is manufacturing’s No. 1 export earner, adding almost £9 billion to the UK’s GDP each year. More widely, the Royal Society of Chemistry claims that £222 billion of GDP and 5.1 million jobs are partially reliant on UK chemical research and the UK chemical industry. The industry faces the additional challenge of using energy supplies both as fuel and as feedstock. Supplies of North sea gas for use as feedstock and fuel are diminishing, meaning that there is increased reliance on less secure supplies of imported gas. The political realities in Russia and Ukraine, as well as in parts of the middle east, show in no uncertain terms the increasing importance of energy security in the coming years. We have only to look across the Atlantic to the east coast of America to see the impact on the chemical industry of lower energy prices and booming supply. Cheaper energy combined with cheaper feedstock and Government investment has kick-started the US chemicals industry, which has since attracted more than $100 billion in investment.

As my hon. Friend the Member for Warrington South (David Mowat) pointed out in January, that success is a direct result of a cheaper economic model and a business case, and as my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) said in his excellent intervention, more than a million jobs have been created along the eastern seaboard of the US.

I want to talk about bricks—I am not talking about Brazil, Russia, India and China; I am referring to bricks and mortar. At the general election, almost every Member stood on a manifesto commitment to increase house building and home ownership. The English housing survey suggests that home ownership is increasing for the first time in a decade, which I am sure we all agree is fantastic news, but the inescapable fact is that if we want to build, we need bricks. The owner of Michelmersh, Britain’s fourth largest brick producer, estimates that Britain requires 2.2 billion bricks a year. The country is at full capacity, making 2 billion, with the rest made up of imports, largely from Germany.

The Federation of Master Builders’ state of trade survey highlighted the scale of the challenge. Two thirds of small and medium-sized enterprises face a two-month wait for new brick orders, almost a quarter are waiting for up to four months and 16% face a wait of between six and eight months. Arrangements for compensating energy-intensives such as brick makers are significantly more generous in countries such as Germany. Although the brick industry is starting to recover and reinvest in some of the kilns mothballed during the recession, that will place British firms at a distinct competitive disadvantage as the demand for bricks soars. An opportunity exists to address that and to help truly kick-start the brick making industry, to complement the burgeoning construction industry and get Britain building.

It is important to keep energy-intensive industries competitive in a global market, not just to safeguard them but to maintain a far wider range of UK industrial sectors. Our foundation industries make the raw materials that go into everything from clothing and medicine to buildings, vehicles and computers. Energy-intensive industries and the jobs associated with them are almost exclusively located outside of London, and they form a vital part of the northern powerhouse and regional growth and development.

By 2030, the world population will be 8.3 billion and 60% of the population will live in urban areas. There will be 2 billion cars on the road, and 50% more primary energy will be needed. Such huge challenges cannot be met without embracing energy-intensive industries. They are the building blocks on which manufacturing rests, and on which our future prosperity will be built.

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[Margaret Ferrier]

I thank the hon. Lady for that intervention, and I will come to ceramics later, if she will bear with me.

The Scottish Government’s steering group specifically helps them to deliver their emissions reductions under the EU emissions trading system and to meet legal obligations such as the UK climate change levy and the energy savings opportunity scheme.

It is clear that the Scottish Government are committed to protecting the steel industry as a key strategic asset in the Scottish economy, and on behalf of my constituents, I would like to put on record my sincere appreciation of that. The UK Government have gone some way, but there is still more to be done.

On the issue of ceramics, in addition to a very long-established steel mill, there is a brickworks in my constituency—Scotland’s only remaining clay brick company, in fact. Raeburn Brick is an established family- run business in Blantyre. Somewhere in the region of 15% of the bricks used in Scotland are produced by Raeburn, which means that about 85% are imported from outside Scotland. Those figures might not mean much to others, but to me they show that there is a real opportunity for more domestic business.

[Graham Evans]

I was interested to hear the hon. Lady mention the figure of 15% being made by that family business. Does she have the figure for how much is imported from outside the United Kingdom?

[Margaret Ferrier]

The figure I have is that 85% of bricks are imported from outside Scotland, but I am not sure how many are within the UK or the EU. I can certainly get back to the hon. Gentleman about that.

If we are serious about long-term and sustainable economic growth, companies such as Raeburn need support. There is clearly room for the Scottish market to expand and reasons why it is being held back. The manufacturing sector is highly important, and I certainly do not wish to see Raeburn at risk, as the Tata steelworks at Clydebridge is. The ceramics industry is looking for a level playing field, just like the steel industry, and is calling for assistance and action on carbon emissions, energy costs and trade, as well as on the housing supply chain.

How do we support energy-intensive industries? I acknowledge and welcome the action that has been taken already. State aid clearance for the UK Government’s energy-intensive industries support package will go some way towards easing costs for those industries.

We need only look at Sweden, for example, to see that electricity prices in the UK are needlessly high. According to Eurostat, the statistical office of the European Union, Swedish industry pays only €0.067 per kilowatt-hour for electricity. In the UK, the figure is exactly double that. Sweden has decided that fracking is not economically viable and is also phasing out nuclear. Renewable energy in the form of hydropower is now the single large source of electricity in the country, and wind power production is growing at a phenomenal pace—it has more than quadrupled over the past six years. We must aspire to cleaner, lower-carbon, sustainable forms of energy if we want to support industry in the long term.

The Scottish renewables sector has massive potential. The waters surrounding Scotland have the potential to provide it with a sustainable, renewable energy source—they are estimated to account for up to 25% of Europe’s tidal power and 10% of its wave power, as well as about 25% of European offshore wind resource potential. That renewable potential is being impaired, however, by the regressive energy policies of the UK Government, who are cutting support for onshore wind and vital support for solar energy projects, and slashing hydro tariffs.

We have an opportunity to develop new, low-carbon products and services, both to accelerate economic recovery in the short term and to drive long-term, sustainable economic growth. In short, low carbon is an environmental and economic imperative.

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[Graham Evans]

I thank the feisty Minister with responsibility for energy-intensive industries. She is doing a great job, and I urge her to carry on with her good work. Locally, it is all about jobs. My hon. Friends the Members for Warrington South (David Mowat) and for Thirsk and Malton (Kevin Hollinrake) and I represent the north of England, but the situation is the same in south Wales, Scotland, the north-east and the other regions of the country. One reason why there are no Labour Members here is that it is Thursday afternoon, which is not a great time for such a debate. They are busy in their constituencies, but they sent their apologies and wished us well.

For me, it is about jobs—well paid, long-term and greener, cleaner jobs. As Members of this House, we have a duty to future generations, who should be able to work in such industries. It is about competitive advantage. We have spoken at length about fracking. I was determined not to mention it, but there is nothing new in it. I believe that fracking is safe, so long as it is done safely. As my hon. Friends mentioned, the industry is being transformed on the east coast of America, with good-quality, well paid jobs being created. I want that for the north of England, Weaver Vale, Wales, the north-east and Scotland. I want a slice of the action. It must be done properly and safely, but I am sure that we can all agree that we need competitive energy prices.

It is also about rebalancing the economy. When this Government came to power with the coalition in 2010, they mentioned rebalancing the economy away from London and the south-east, and away from the financial industries. My hon. Friend the Member for Warrington South asked whether the strategy and policy was to benefit the banking industry. We are in the business of ensuring that industry keeps providing good-quality jobs in the north of England.

We are currently the second largest economy in Europe. If we are to be the biggest—we could well be, because Germany has some structural issues—we need these foundation industries, the energy-intensive industries. The future is bright for Great Britain, but it is not guaranteed. We must work together to ensure that we provide good-quality, highly paid jobs in manufacturing and the energy-intensive industries that are so important to our constituencies: chemicals, steel, paper, glass, ceramics and others. I am in the business of the future and providing good-quality jobs for a future that is brighter, greener and more prosperous for our children and our children’s children.

Question put and agreed to.

Resolved,

That this House has considered energy intensive industries.