Energy-intensive Industries

Mark Pawsey Excerpts

Thursday 11th September 2014 Commons Chamber

[Mark Pawsey (Rugby) (Con)]

It is a great pleasure to follow the hon. Member for Stockton North (Alex Cunningham) and I congratulate him on securing a debate on such an important issue. I support the motion on energy intensive industries, and wish to speak about cement manufacture. The hon. Gentleman has already spoken about construction materials, but it is to that sector that I wish to address my remarks.

My constituency is best known as the birthplace of rugby football, but for many, it is the home of Rugby cement. Cement has been produced in the Rugby area for more than 150 years, starting with a small-scale lime production at Newbold in 1865. Operations moved to the present site in Lawford road in the 1960s. Today, the plant, which is operated by CEMEX, is one of the most modern in the world and represents a total investment of £200 million. It has the largest kiln in the UK, and a production capacity of 1.8 million tonnes of cement per annum. It provides direct employment for many people, involving a large number in the supply chain. It is estimated that CEMEX contributes £25.5 million per annum to the local economy in Rugby. On the assumption that the average house contains about 18 tonnes of cement, the Rugby works produces enough cement for the construction of more than 72,000 houses.

The energy used in cement manufacture is not used to raise the temperature in the kiln. The kiln has traditionally burned coal but is increasingly using alternative fuels, which, in Rugby’s case, means chipped vehicle tyres and waste-derived fuel. Waste-derived fuel is such an important component that a new plant to provide it and to make a material known as Climafuel is under construction in my constituency. That fuel is derived from household and commercial waste and is making effective use of material that years ago would simply have been put into holes in the ground. Rather than in the kiln, the cement manufacturing sector uses high levels of electricity to transport material around the plant and to grind down the grey clinker that comes out of the combustion process into the grey powder that we would all recognise as cement.

I want to add my concerns to those already expressed by the hon. Member for Stockton North that the cost pressures of the imposition of carbon taxes will mean that it will become uneconomical to manufacture cement in Rugby. Part of the problem, as he has set out, derives from EU legislation and it is good that the Government have recognised the pressure on UK manufacturers caused by EU environmental legislation and that they have applied to the EU for compensation to mitigate the impact. The problem for cement manufacturers is that the European Commission, which published environmental protection and state energy guidelines on 19 May 2014, failed to include the cement sector among those that will receive compensation against the cost of the carbon price support. Regrettably, only those sectors eligible to receive support against the EU emission trading scheme’s indirect CO₂ costs, which are listed in annex II, can qualify for support for other carbon-related costs. Cement manufacture is not included and therefore will not benefit.

It is important to note that the carbon price support tax, which affects the UK only, will put the UK cement industry at a disadvantage compared with those in other EU countries. It also puts the cement manufacturer at a disadvantage against the manufacturers of other materials. For example, steel attracts compensation for both EU ETS indirect costs and the carbon price support tax.

The cost to the cement sector of the ETS over the period 2014-20 is an estimated £82.7 million and the cost of carbon price support over the same period has been estimated at £104 million. The cement manufacturing sector will have to meet those costs if no compensation is received and they will merely add to the cumulative burden that the sector is facing as a result of energy and climate change policy.

The situation faced by cement manufacturers is unfair. Construction products must be allowed to compete on a level playing field, because if they are not UK manufacturing capacity—that means jobs—will be lost. Although cement is a heavy product, it travels easily and cheaply on a barge and can be imported from all over the world. There is enough cement manufacturing capacity in the UK to supply all our needs, but cement imports stand at 14% of UK consumption, up from 3% in 2001. Cement is coming in from many parts of world. An international company such as CEMEX, which runs the plant in my constituency, is aware of the cost of producing a kilo of cement in locations across the world and if the cost is too expensive in Rugby, it will simply not continue to manufacture there.

There are steps that can be taken, and that process has started. The first is a full or partial review by the EU of the emissions trading scheme, which is taking place. The Commission might amend it before the applicable date of 31 December 2020, and I believe the Commission should urgently review the cement industry’s case. I understand that the European cement industry’s trade body lawyers have communicated with the Commission, which has said that it has

“no plans currently to reopen the ETS State aid guidelines and/or the Annex with the sector”

but that it

“would however be interested to hear the industry’s views on what may have changed for the cement sector”.

Therefore, there is a window of opportunity to address the problems that the cement industry faces.

The second change that would benefit the sector is the Government taking action by accelerating renewables compensation and their compensation of certain sectors for higher energy costs resulting from the renewables obligation. The UK plan is to implement a scheme from 2016-17, but that could be brought forward to 2015-16 if there were to be such an announcement in this year’s autumn statement. I understand that the Department for Business, Innovation and Skills has already informed the Mineral Products Association that its favoured option is to review or amend the ETS, if the Commission will allow that.

Will the Minister respond to these points? On 26 June, the then Business Minister, my right hon. Friend the Member for Sevenoaks (Michael Fallon), said:

“I intend to ask the new Commission this autumn for an early review of the ETS and to include new sectors, such as cement, that have missed out so far.”—[Official Report, 26 June 2014; Vol. 583, c. 456.]

Will the Minister confirm that she will honour that undertaking and raise the issue, as promised, with the Commission? When she writes to the Commission, will she seek a review of annex II of the ETS indirect CO₂ aid guidelines and stress the urgency of the need for an early and positive decision, because of its influence on the UK-only carbon price support tax?

Will the Minister agree to ask the Commission to give priority to issuing state aid approval following a favourable review of annex II of the ETS indirect CO₂ aid guidelines? Does she accept that the UK cement industry is at a disadvantage compared with its European counterparts and other, competing construction materials that attract EU ETS and carbon price support compensation?

The consequences of the actions taken by this Government mean that our economy is the fastest growing in the G7, and construction is at the forefront of that economic growth, so it would be a tragedy if UK manufacturing were unable to continue to contribute to that growth because it had been priced out by a burden imposed by environmental taxes and levies, which make it less expensive to manufacture overseas. Instead, businesses will simply ship materials in.