Carbon Price Floor: Delay in compensation package for the indirect cost impact
Confederation of Paper Industries
In his letter, Mr Workman highlights that during his 2011 Autumn Statement, Mr Osborne expressed concern that Energy Intensive Industries (EIIs) could be driven out of the UK through energy policy related costs. Associated with his announcement, Mr Osborne allocated £250m to reduce the impact of the CPF on the most electro-intensive installations – most UK paper mills are eligible for this compensation.
The compensation package is in three parts, and whilst Mr Workman thanks
the Chancellor and colleagues in BIS and DECC for delivering the first two parts, he expresses concern over the delay to the third part of the package – the compensation for the impact of Carbon Price Support (CPS) taxation.
There is even concern that, at worst, this element of the compensation package may be refused by the European Commission under State Aid rules.
Mr Workman goes on to outline the cost implications on the UK papermaking sector. The lower projected cost of EU Emissions Trading System (EU ETS) compliance, plus the £2 per tonne annual increase, means CPS is now set (in the 2013 Budget) to almost double next year and then double again the following year – from a rate of £4.94 in 2013/14 to £9.55 in 2014/15 and to £18.08 in 2015/16. The cost of CPS to UK paper mills this year is estimated at £10.2m, increasing to £19.6m next year and £37.3m the following year.
As CPS is a UK-only tax, not only does it place UK based EIIs at a competitive disadvantage, but it has no impact on overall carbon emissions as these are simply moved outside the UK electricity sector to elsewhere in the EU economy.
CPI therefore, has called for the complete abolition of CPF and a refocus on EU ETS as the primary instrument to regulate the emission of fossil carbon in the context of a global agreement. This would have the merit of helping to restore a level playing field with our EU competitors.
In his letter to the Chancellor, Mr Workman stated that if CPF is not abolished, it should be frozen at the current level permanently, or at least until the State Aid application is resolved. He warned that proceeding with cost increases without the compensation package, risks real damage to UK industry and is against the Chancellor’s own policy to re-balance the economy.
Mr Workman concluded by urging the Chancellor to reconsider the inclusion of electricity generated by industrial gas powered Combined Heat and Power (CHP) within the remit of the tax. Industrial CHP is acknowledged as having unfulfilled potential to help reduce emissions and reinforce the grid. Current Government policies have largely destroyed the economic argument for CHP investment and place in jeopardy the continued operation of some existing plant.
