“Climate Change” Policies Risk Major Damage to Economic RecoveryA preoccupation with “green energy policies at any cost” is undermining the competitiveness of manufacturing industry, according to a new report from independent think tank Civitas.
In a new publication called British Energy Policy And The Threat To Manufacturing Industry, sector experts Ruth Lea and Jeremy Nicholson reveal that the increased costs of energy arising from “green” energy policies are set to increase significantly.
Ms Lea is currently Economic Adviser and Director of Arbuthnot Banking Group plc and Mr Nicholson is Director of the Energy Intensive Users Group.
“Increased costs will hurt manufacturing at a time when much depends on the sector to generate the economic growth the country needs, and to rebalance the economy,” a press release from Civitas said.
In their report, the authors examine the impact of the recent Labour Government's policy on energy prices.
“They argue that Labour's aim to reduce carbon emissions and increase the proportion of energy generated from renewable sources, significantly increased costs for energy consumers,” Civitas said.
The “analysis provides a timely warning because under the new Coalition Government, energy policy could be as damaging to manufacturing industry as it was under Labour.
“Lea and Nicholson cite evidence that the recent Labour Government's climate change strategy hiked up electricity bills. For example, the Department for Business, Enterprise and Regulatory Reform estimated in 2008 that the 'surcharge' on electricity prices, attributable to climate-change policies, amounted to an extra 14 percent for domestic users and 21 percent for business.
“Furthermore, the Department of Energy and Climate Change’s Renewable Energy Strategy (2009) suggested that these surcharges could be as high as 33 percent and 70 percent by 2020 respectively.
“Lea and Nicholson highlight the two major legislative commitments responsible:
“1. The Climate Change Act (2008) - including a legally binding target of at least an 80 percent cut in greenhouse gas emissions by 2050.
“2. The EU's Renewables Directive (2008) - under which the UK must meet 15 percent of its final energy consumption through renewable sources by 2020.
“Britain will bear a greater cost than other countries,” Civitas said.
“This country is particularly badly placed for such commitments. First, Britain is starting with a very modest renewables industry, so the burden of the EU's Renewables Directive will be substantial,” the statement continued.
Highlights from the report include:
- The proportion of renewables to total energy consumption in 2005 was just 1.3%, compared with an EU27 average of 8.5%.' (p.6)
- Even without the extra costs associated with climate change policies that are due to be imposed, Lea and Nicholson argue, Britain's industrial electricity prices already tend to be amongst the highest of any major economy.
This puts British business and, in particular, energy intensive users at a cost and international competitiveness disadvantage. Moreover, given the expected increases in the climate change surcharges, Britain's cost disadvantage will almost certainly increase, thus undermining competitiveness further.
- Such extra costs would inevitably tilt the balance for many businesses and render them unviable in Britain. (p.10)
- Energy intensive users, including steel, glass and ceramics, bulk chemicals, industrial gases and cement, are especially vulnerable. These are important contributors to GDP not only in their own right but also because of their inter-dependent relationship with 'downstream' industries.
- Britain is already losing energy intensive businesses because of the lack of competitiveness... There is no doubt that high energy prices have already been a factor behind industry closures. (pp.10-11)
The report outlines specific examples of the layers of 'fall out' from such closures, for example, the INEOS Chlor plant in Cheshire manufactures chlorine and caustic soda which are vital inputs to a wide-range of 'downstream' industries including disinfectants, plastics, pharmaceuticals, soaps and detergents.
“Rather than import the basic chemicals, many of the downstream businesses would migrate to countries where they were still domestically produced for reasons of reliability of supply and transport costs,” the report states.
“The economy desperately needs a competitive and thriving manufacturing sector if it is to prosper. Competitive energy prices are vital to the success of manufacturers, especially energy intensive users.
“Government energy policies are, however, remorselessly driving up energy costs thus risking the 'migration' of manufacturing plants to economies where the costs are lower,” Civitas said.