Energy Intensive Industries

Nia Griffith Excerpts

Wednesday 4th December 2013 Westminster Hall

[Nia Griffith (Llanelli) (Lab)]

I rise to speak as the secretary of the all-party parliamentary group for the steel and metal-related industry and because steel is an extremely important industry in my constituency, which has 19% of its employment in manufacturing—considerably higher than the UK average. Steel and a lot of related metal industries and the automotive industry are extremely important to me.

I congratulate my hon. Friend the Member for Newcastle-under-Lyme (Paul Farrelly) on securing the debate, and I would particularly like to congratulate my hon. Friend the Member for Penistone and Stocksbridge (Angela Smith) on her contribution. I shall try not to repeat her comments, given the shortage of time, but I would like to endorse everything she said.

Although huge efforts have been made over the years to improve energy efficiency, with steel production now being 40% more efficient than it was in 1975, it is becoming increasingly difficult to find additional savings. It becomes harder and harder, and one thing I have asked the Government before—and ask them again—is to take another look at such things as enhanced capital allowances and renewable heat incentives, to try to recognise and incentivise increased efficiency measures and better use of resources. In the long term, I think we also need to raise that issue as part of the EU emissions trading scheme, because when companies have really made a huge effort to make massive improvements, which is obviously helping us all globally to get emissions down, we need to try to recognise that.

Tata and many other steel manufacturers already recycle waste products in their factories and reuse a lot of the heat that they produce. Of course, metals are highly recyclable substances, and, again, those are the sorts of things that we should be supporting. However, it is a highly competitive world and we know that if we want to see UK-produced steel products and other products used in UK infrastructure, we have to get the price right.

On the use of UK products, I really would like the Government to move forward with the idea of targets for percentages of local content in big infrastructure projects and to look again at developing criteria on local economic benefits in assessing tenders for major projects. That has been done elsewhere in Europe, so it is not impossible to do it and still keep within European regulations. This is very important, and we could report how much local content was used, which would really flag up how much we think it matters that UK products are used in UK infrastructure. However, none of that can happen unless we get a competitive price. We must have a competitive price or we cannot even get out of the starting blocks on tendering for any UK infrastructure projects.

Energy is a major component cost, costing Tata Steel some £300 million last year. That is a huge bill. If we take a conservative estimate and say that energy costs are 60% more than in Germany—some colleagues have quoted 70%—the difference even then can amount to more than 10% of the product price. That is the difference between people being able to sell their product and not being able to. It makes a massive difference to competitiveness, and it is virtually impossible to offset that type of competitive disadvantage.

As we know, the carbon price floor is a unilateral tax. It was introduced in the UK and now we are in a muddle, trying to sort out the state aid rules in order to give help, whereas if it had not been imposed in the first place, we would not have to try and get the mitigation measure. The carbon price floor is a major disadvantage, putting us at a considerable competitive disadvantage as compared with places such as Germany and the Netherlands—we are not talking about cheap labour countries, but comparable countries in Europe.

Having said that, even if the state aid rules are sorted out, the rebate will only be 80%, so there is still an outstanding 20% that we will not be able to get. In addition, the renewables obligation is double what the Government’s mitigation measures will give back, so there is a real need to have a complete review of the whole green tax issue—of the complexity, as has been mentioned, and of the fact that the renewables obligation is what seems to be causing the most difficulty. I ask the Government to have a real look at the cost differential between the UK and elsewhere in Europe, which arises from the renewables obligation. As has been mentioned, the costs in other countries are something like 50 euro cents per megawatt-hour, whereas here we are looking at £10.50 per megawatt-hour. That sort of difference is creating a huge problem for our manufacturing industry.

I ask the Government to look at the whole issue—at the interplay of all these taxes. What we are saying today is that it is about the cumulative impact. It is about looking at the whole picture of all the different elements of the green taxes, not because the industries are against them but because the industries want a level playing field and for the system to work for everyone across Europe equally.