Energy Intensive Industries

Michael Fallon Excerpts

Wednesday 4th December 2013 Westminster Hall

[The Minister of State, Department of Energy and Climate Change (Michael Fallon)]

I am very grateful to the hon. Member for Sunderland Central (Julie Elliott) for giving me a little extra time to enable me to try to respond to some of the very good points made in the debate. I hope that, if I do not respond to them all, hon. Members will allow me to write to them on the points that I have missed out.

This has been a good debate. It has not just been a good-natured debate. I think that it has been a reasonably constructive debate and it is certainly a very important one. I congratulate the hon. Member for Newcastle-under-Lyme (Paul Farrelly) on instigating it and attracting such a good attendance on both sides of the House. He raised a number of points. He asked about our engagement with the industry. He will know that last month I met Staffordshire Members with the British Ceramic Confederation. I have also met representatives of BASF, which he specifically mentioned, to hear their particular concerns. We are always ready in the Department to continue to meet representatives of those industries that are most affected.

The hon. Gentleman raised the issue of gas storage. I know that he disagrees with our decision not to subsidise large-scale storage reservoirs, but there are fast-cycle gas storage plants being completed. Two have been completed already. Two more are due to be completed next year. That will double our gas deliverability. I do not accept that the decision not to subsidise gas storage makes any major contribution to that debate.

The hon. Gentleman asked about the position of refractory ceramics. My officials have visited some of those electricity intensive sites, and we are considering the case for including them within the carbon price floor compensation. He tempted me to speculate, in advance of the autumn statement, on the carbon price floor. I simply cannot do that. The carbon price floor is a matter for the Treasury, as he knows. What I can say is that, obviously, the Department for Business, Innovation and Skills is very much aware of concerns across industry about the level and the trajectory of the carbon price floor, and we certainly ensure that our views are known in the Treasury.

The hon. Member for Penistone and Stocksbridge (Angela Smith) made several points. She compared prices with those in France, but I ask her to reflect on the fact that France enjoys a huge amount of base load nuclear power. I hope that she will welcome the decision to replace our nuclear fleet and to invest in such base load nuclear power, a decision that was too long delayed. She also made some important points about simplifying the schemes. I am completely with her on that, and I will refer in a moment to what we have done in that regard.

My hon. Friend the Member for Warrington South (David Mowat) reminded us of the need to be competitive, and he spoke of the success of shale in the United States. I reassure him that we are encouraging the search for shale in the United Kingdom. A dozen companies are prospecting, and more applications to drill are coming in. I expect the search for shale to accelerate over the next few months. He usefully reminded us that we all bear responsibility for the way in which we vote in this House, and several of us have voted in favour of climate change objectives. Indeed, we have the opportunity this afternoon to vote down an amendment that would increase energy prices for industry and business.

The hon. Member for Scunthorpe (Nic Dakin) asked me about the working of the ETS compensation scheme, which has paid out some £18 million to 29 companies, including Tata Steel, in respect of several plants in the constituencies of hon. Members who are present: the hon. Members for Middlesbrough South and East Cleveland (Tom Blenkinsop), for Scunthorpe, for Central Ayrshire (Mr Donohoe), for Rutherglen and Hamilton West (Tom Greatrex), for Llanelli (Nia Griffith) and for Penistone and Stocksbridge, and my hon. Friend the Member for Warrington South. Those payments are flowing. They are backdated to January, and they will be made quarterly from now on. I will say a little more about the working of the scheme in a moment.

My hon. Friend the Member for Rugby (Mark Pawsey) championed the cement industry in his constituency, as I would expect him to. We recognise the pressures that that industry faces, which is why we have announced the exemption for mineralogical and metallurgical processes from the climate change levy. We are examining the case for the inclusion of cement and some ceramics—those that have come forward with evidence—in carbon floor price compensation.

The hon. Member for Llanelli spoke about energy efficiency, which is extremely important, and she also made an important point about local content. It is our intention to require, under contracts for difference, supply chain plans in respect of major contracts. Not only will that make those involved examine how they can drive up local content, but it will enable us to see more clearly where the local content is. I hope that she will welcome that measure.

The hon. Member for Sunderland Central suggested that the failure to set a decarbonisation target was somehow delaying investment. The House voted down the setting of a decarbonisation target in June, since when we have seen a wave of investment: not only the signing of the first new nuclear station in a generation but the introduction of a series of projects under our intermediate final investment decision enabling regime. She asked me what we were doing in respect of the Commission. My right hon. Friend the Secretary of State has regular discussions with the Commissioner. My right hon. Friend and I regularly go to Brussels to pursue cases such as CPF compensation, and we try to build support among other member states.

The hon. Member for Penistone and Stocksbridge made one of the most important points of all, namely, that there is a balance to be struck between green taxes, which the House has generally supported under successive Governments and which some of us have voted for, and ensuring the competitiveness of our industries. That can be a difficult balance to strike, and we are tackling it in two principal ways. We are helping to incentivise energy efficiency in industry and households, which several hon. Members described as important, and we are helping to relieve some of the short-term pressures on industry.

[Joan Walley]

Does the Minister agree that climate change agreements are an important way to incentivise clean power and meet decarbonisation targets?

[Michael Fallon]

I agree with that, and I will come on to climate change agreements later. The Government cannot control the volatility of global fossil fuel prices, but we can help industry to exploit energy efficiency potential, which will reduce the impact of rising prices. Some of our incentives are financial ones. The climate change levy is a tax on business energy use, and the EU emissions trading system is a cap-and-trade mechanism based on the emissions of energy intensive industries. The scheme is forecast to save the equivalent of 3,100 megatonnes of CO₂ by 2020. To complement the EU ETS, we have a domestic scheme, the carbon reduction commitment energy efficiency scheme, which targets large non-energy intensive organisations. That is predicted to save the equivalent of 4,800 gigawatt-hours per year, which is greater than the annual energy use of all households in Manchester.

In addition to those financial incentives, we are working to incentivise industry through several other mechanisms. Climate change agreements, which the hon. Member for Stoke-on-Trent North (Joan Walley) referred to, are aimed specifically at energy intensive industries. They provide a discount on the climate change levy of 90% for electricity and 65% for gas, in exchange for commitments to achieve energy efficiency. She is right to remind us that they are a good example of an area in which Government and industry can work together to agree achievable objectives. More than 50 energy intensive sectors have negotiated agreements under the latest phase of the scheme, which are expected to result in an 11% energy efficiency improvement across participating sectors by 2020. Looking ahead, we have recently consulted on the new energy savings opportunity scheme, which will help larger businesses to identify energy efficiency measures that will result in average bill savings of £50,000 to £60,000 per year. Subject to legislation, the first audits under the scheme will be undertaken by December 2015.

The second leg of our reforms is the recognition of the competitiveness problems faced by some industries as a result of their energy costs, which lies at the heart of today’s debate. Rising electricity prices are a real concern for many businesses, which see them as a barrier to growth. The commitments to tackling climate change that the House has voted through have contributed to increases in those bills. That is why we have set aside up to £400 million to offset some of the costs of energy and climate change policies for the most energy intensive industries.

As we move to a low-carbon economy, it is vital to ensure that the more energy intensive industries are not placed at a competitive disadvantage in Europe or across the world, and they are not forced to consider relocating to other countries. Not only would that have a negative impact on our economy, but it might result in our exporting emissions to countries that are not strongly committed to cutting carbon emissions. Many energy intensive businesses are located in areas that have been hit hard by the economic downturn, so we have to ensure that we give them the best support available.

I have spoken about the energy contingency scheme. We continue to engage closely with the Commission on the carbon floor price, to obtain the necessary state clearance. Both packages are aimed specifically at the electro-intensive industries. It is important to highlight—

[John Robertson (in the Chair)]

Order. We must move on to the next debate.