Financial Assistance to Industry

Matthew Pennycook Excerpts

Monday 7th December 2020 General Committees

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Pritchard.

Let me say at the outset, for the purposes of clarity, that the Opposition support the objective that underpins this motion—namely, the need to minimise the risk of carbon leakage by taking steps to ensure that energy-intensive industries are not put at a competitive disadvantage as a consequence of the cumulative impact of carbon pricing on industrial electricity prices.  

It is obviously important that UK manufacturing should be able to remain competitive during the transition to a low-carbon economy, and we recognise that there is a need to continue to provide compensation for the indirect emissions cost of whatever carbon pricing policy replaces the EU emissions trading system.  For that reason, we will not be opposing the motion this afternoon.  

I would, however, like to take the opportunity to raise with the Minister two important questions that relate directly to the motion under consideration. The is about what carbon pricing policy will replace the EU emissions trading system. To put it another way: in respect of what arrangement do the energy-intensive industries that we are discussing require compensation during the next financial year? 

As I have said to the Minister on previous occasions, we cannot run the risk of a dysfunctional carbon pricing system in the year we host the critical COP26 UN climate summit.  As the Committee will know, only 24 days—eight sitting days—of this parliamentary term now remain until the transition period ends, and with it the UK’s participation in the EU ETS. Yet the Government have still not announced whether a stand-alone UK ETS or a carbon emissions tax will operate from 1 January should a linking agreement with the EU ETS not be negotiated and put in place by that date.  Surely, the Minister cannot believe it is fair that the emitters in question still have no idea what arrangements they will be operating under in just three and a half weeks’ time. My understanding is that a decision has been on the Prime Minister’s desk since late last month. If that is the case, what on earth is stopping the Government making clear to those affected what fall-back carbon pricing arrangement will operate in the UK from 1 January should the linked UK-EU scheme not materialise from the negotiations in the coming days and weeks?

In all candour, I have no expectation of getting an answer today from the Minister, but I would be grateful if she could at least acknowledge that the Government recognise that they owe those operators clarity on this issue as a matter of some urgency. I would also be grateful if she could clarify how her Department has been able to estimate that the compensation budget for the next financial year will stand at £140.6 million. Although we know that we have a carbon price floor in place from 1 January, we still have absolutely no confirmation of what will replace the EU ETS.

The second issue I want to raise concerns the long- term arrangements for addressing carbon leakage and ensuring that our energy-intensive industries remain competitive as we accelerate the pace of emissions reduction. We accept that compensation of the kind we are authorising today is necessary, but to avoid the cost of such compensation spiralling over the long term, as the price of carbon is increased, there must be sufficient long-term support to green the industries in question. After all, as the Minister will know, many if not all of the energy-intensive industries covered by the motion will not only benefit from compensation for the indirect emissions cost of carbon pricing, but will continue to benefit from reduced costs in respect of climate levies. They are, in short, in a relatively privileged position relative to other less energy-intensive industries. Therefore, as we accelerate efforts to achieve net zero, there will have to be greater use of conditionality to ensure that the financial support provided to compensate these industries is balanced by measures to ensure that their carbon intensity is steadily reduced.

I note that a review and a consultation in early 2021 in relation to the compensation scheme have been mentioned, and the Minister touched on that in her remarks, but I would be grateful if she could reassure the Committee that the Government recognise the limits of the compensation mechanism in question over the long term as the price of carbon rises, and that they accept that more will need to be done beyond the schemes she touched on to accelerate the pace of decarbonisation in these industries, not least to manage the costs of the current scheme going forward.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

rose—