Energy Intensive Industries

Debate between Paul Farrelly and Alex Cunningham

Wednesday 4th December 2013 Westminster Hall

[Paul Farrelly]

The hon. Gentleman makes the point very simply; we must look at things in the round when we consider reform of the system. I want to explain that industry wants reform to be simple and far-reaching, to permit competition with big companies that enjoy great support in Germany.

We are all familiar with the concept of fuel poverty—elderly people or less well-off families spending significant parts of their income on keeping warm. That concept could, strange as it may seem, equally be applied to some of our major manufacturers. Energy can account for up to a third of all costs in the ceramics industry and up to 70% of costs for major chemicals manufacturers, as we have heard. Big international price discrepancies matter, and will matter more if prices continue their inexorable rise. Like the household bills that we have put under the microscope in recent weeks, the price that industry pays for electricity also breaks down into three main components. One is the wholesale cost, which is rising. Another is climate-related charges. Hon. Members will have to bear with me while I go through a short list of what they include: the carbon price floor, the EU emissions trading system charges, the climate change levy, the renewables obligation, small-scale feed-in tariffs and, to be added to that bevy of burdens in the future, contracts for difference under electricity market reform. The third component is transmission charges, which are also increasing ahead of inflation, and which also include climate-related costs in the form of subsidies for offshore wind and other intermittent renewables.

I do not want to torture hon. Members and the Minister into torpor and total submission, but I shall give a couple of examples, provided by the British Ceramic Confederation, of the present and future impacts on industrial electricity prices of some of the carbon taxes and climate levies. Today, without climate change policies, the baseline electricity price that is being paid is about £70 to £71 per megawatt-hour. The climate change policies add £4 to £14 to that, so the cost rises to between £75 and £85. It is reckoned that, in 2020, which is not so far off, on top of a forecast base of £79 per megawatt-hour, the policies in question will add £15 to £35 or so; and in 2030, with the same forecast base, the cumulative effect of carbon tax and levies will, it is estimated, add £25 to £55, taking the price of electricity beyond £100 per megawatt-hour, to a top-of-the-range £130.

[Alex Cunningham (Stockton North) (Lab)]

My hon. Friend referred to the bevy of burdens on energy intensive industries. When I talk to the likes of INEOS and GrowHow, in my constituency, they say they want certainty and simplification, which is surely the way forward, and a long-term policy, so that they know what is coming in five and 10 years.

[Paul Farrelly]

My hon. Friend anticipates the final paragraph of my speech—which is not too far off—with a plea for simplicity and predictability.

Industry’s message about comparative prices and prospective increases is simple. With non-baseload charges rising so rapidly, on top of wholesale price increases, the UK’s energy intensive industries will be at a growing disadvantage, not only compared with international competitors, but because of lower-cost countries internationally that are hungry for their investment. Of course, the fact that the playing field is so far from being level harms UK industry, but it will also do nothing to help with climate change or to reduce carbon emissions, if it means that manufacturing ends up in less energy efficient factories in countries with a laxer view of their environmental obligations. I know that my hon. Friend the Member for Stoke-on-Trent North (Joan Walley) is concerned about such prospects for carbon leakage.