Press Release

CPI raises concern over cumulative effects of government energy, carbon and environmental policies on UK's paper-based industries

By Thu, Nov 15, 2012

SWINDON, UK, Nov. 15, 2012 (Press Release) -David Workman, Confederation of Paper Industries' (CPI) Director General, recently wrote to the Chancellor regarding his concerns about the cumulative effects of current Government energy, carbon and wider environmental policies. Writing on behalf of the UK's Paper-based Industries, Mr Workman believes such policies will make energy in the UK so expensive that Energy Intensive Industries (EIIs), such as paper, will be driven abroad. CPI calculates that the UK's paper manufacturers face increases in costs amounting to several £100ms between 2013 and 2020.

In his letter, Mr Workman highlighted the importance of the Chancellor's forthcoming Autumn Statement as a forum for addressing some of these concerns. He began by outlining that Papermaking is an intrinsically energy intensive process, but that UK manufacturers need internationally favourable energy prices to remain competitive and to continue to attract inward investment.

Mr Workman drew attention to the continued investment made by the sector in energy efficiency, and the fact that UK paper mills now use 42% less fossil energy to make each tonne of paper than they did in 1990*.

"National carbon accounting focuses on direct emissions in the UK, meaning swapping UK manufactured goods for imported ones simply offshores the emissions, resulting in no reduction in global emissions. Of course alongside the emissions being offshored, so also are the jobs and wealth creation that we should be benefitting from as we seek to re-balance the economy" commented Mr Workman.

Whilst CPI recognises that the coalition Government has taken a number of measures to help mitigate the effects of achieving the UK's ambitious carbon reduction and renewable targets, and the £250m support package for EIIs announced in the 2011 Autumn Statement was a welcome measure, it is a mere drop in the ocean of what is needed to offset the cumulative cost impact of current Government policy.

The long investment cycles in capital intensive manufacturing mean CPI takes a keen interest in the long term impact of policies - a new paper mill costs in the region of £300m and can expect to be in operation for at least 25 years. In July, BIS released a report assessing the impact of Government policies on the long term cost of electricity (‘An international comparison of energy and climate change policies impacting energy intensive industries in selected countries') and found UK manufacturers can expect increased costs well in advance of those faced by competitors overseas. The Government's own figures in section 1-2 make for sobering reading.

Additionally, a TUC/Energy Intensive Users Group (EIUG) report published in July concluded that "there is significant evidence that these policies are having a corrosive effect on the viability of industrial businesses and entire industry sectors within the UK".

While it is the cumulative impact of Government policies that is critical to CPI Members, Mr Workman highlights one new policy of particular concern and urges an urgent re-think;

"An example of misguided policy is the forthcoming Carbon Price Floor (CPF), through which the cost of electricity in the UK will be inflated as additional taxation is applied to fossil fuels when used to generate electricity. This is presented as a green measure, but fails in two key areas. Technically, the aspiration to reduce carbon emissions will not be met because the overall EU emissions cap is not reduced, meaning industry elsewhere in the EU will benefit from lower costs. Practically, UK industry will be locked into guaranteed higher energy prices than that elsewhere. While the initial levels of taxation are of concern, the inbuilt annual cost increase means the cost of this policy will quickly escalate, increasing electricity costs across the UK. Figures from DECC indicate substantially higher electricity costs through to the 2020s and then possibly marginally lower thereafter - guaranteed pain now, maybe less pain later!".

Mr Workman proposed outline measures the Industry would wish to see announced in the forthcoming Autumn Statement:

  • Support for a major industrial energy efficiency programme by allocating a substantial amount of the money raised from industry in Emissions Trading Scheme (ETS) and CPF taxation for this purpose.
  • Rethink the CPF cost escalator - an increase in electricity related carbon costs from effectively zero in 2012 to £33 (per tonne carbon dioxide) in 2020 is simply competitively unsustainable. Ideally, we would seek to abandon the CPF altogether.
  • Reward and support investment in on-site electricity generation for self-use by exempting it from taxation present policies are destroying the economic case to invest.
  • Support the further deployment (and retention of existing plant) of more efficient Combined Heat and Power (CHP) generation through feed-in tariffs or other support mechanisms.
  • Accept that for energy security a mix of generation technologies is required and that gas will have a major role to play through to at least the 2030s.

Mr Workman concluded by advising the Chancellor that 2013 is a critical year for the Industry as it marks the start of the next phase of the EU ETS, the introduction of the CPF and new and challenging Climate Change Agreement targets. In this context, the forthcoming Autumn Statement is of crucial importance.

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