Industry must be 'incentivised to invest'

Half of the paper used in the UK is manufactured abroad so the sector should be ideally placed to play its part in helping to rebalance the economy through inward investment. However, new and existing energy taxes are acting as a disincentive to investment, both in existing sites and in new plant. These energy taxes are simply not affordable and will cost UK jobs.

The paper industry has already invested heavily and has managed to reduce energy consumption and carbon emissions by over 40 per cent per tonne of paper produced over the last ten years – a phenomenal achievement.

However, the 'low-hanging fruit' has already been plucked and industry is extremely concerned about the cost implications of a variety of specific measures aimed at decarbonising energy supply and reducing carbon emissions. These measures are adding an extra layer of cost for UK-based installations, not faced by overseas competitors.

We welcomed comments made by the chancellor in his speech to the Conservative Party conference, that the UK should not be aiming to go further or faster than our European competitors in achieving climate-change goals.

The Autumn Statement needs to consider introducing a range of measures to promote the interests of not just the paper industry, but all Energy Intensive Industries (EIIs), especially those that have been declared 'at risk of carbon leakage'.

Of critical concern is the cost of policies – estimated at £200bn between now and 2020 – aimed at achieving the UK's uniquely challenging renewable energy target. Germany offers significant discounts to its EIIs to offset the pass-through costs of achieving its renewables targets (based on voluntary agreements). We urge the chancellor to consider a similar mechanism here in the UK.

We accept that Climate Change Agreements are a useful mechanism for targeting energy reductions in EIIs. However, the discount on the Climate Change Levy (CCL) has been reduced to 65 per cent in 2011/12 – a measure that will cost the paper industry an additional £4.7m this year. Although the levy discount returns to 80 per cent (for electricity only) in 2013, this is still below the figure that is allowable under EU law. We urge the chancellor to increase the levy discount to the maximum allowable – around 90 per cent.

Potentially the most damaging piece of UK-specific legislation is the unilateral introduction of the Carbon Floor Price mechanism. Over the period 2013–2020, this measure alone will cost the UK Paper Industry £114.5m in increased charges for grid electricity, even allowing for the offset by returning the CCL discount to 80 per cent.

We welcome the government's work to develop a new Energy Intensive Industry Strategy and would hope to see substantial proposals in the Autumn Statement. Measures to shelter UK industry from the growing burden of energy taxation are critical.

At a time when the UK needs manufacturing to play a greater role in generating economic growth, we need to incentivise industry to invest. This will not happen unless decisive action is taken to mitigate some of the costs which government itself is about to impose on energy-intensive industries such as papermaking.