Thursday, November 03, 2011

Energy intensive industries beat energy-saving targets but still want tax breaks

oil refinery
Energy intensive industries beat their energy-saving targets

Energy intensive industries are beating their energy-saving Government targets at the same time as lobbying for more tax breaks on the carbon price floor.

Companies such as Tata Steel, Rio Tinto and Ineos Group Holdings Ltd. are lobbying DECC and the Treasury to be protected from the cost implications of the carbon price floor and the EU Emissions Trading Scheme.

But the Government's negotiating arm to resist this will be strengthened by the news that these industries saved energy, and therefore carbon and cash, to the tune of 28.5 million tonnes of carbon (MtCO2/year) last year.

They even collectively exceeded their targets by 2.7MtCO2/year under the Climate Change Agreement (CCA), according to new figures for 2010 released by AEA for DECC.

The targets were voluntarily agreed because the participants obtain a 65% tax break on the Climate Change Levy (CCL).

One of the best performing of the 54 sectors in the scheme is also the one lobbying most for favourable treatment: the steel sector.

It made savings of 13.1 MtCO2/year, while its target was 4.4MtCO2/year, meaning that it beat its target by 8.7MtCO2/year.

The other sectors only beat their target by 1.7MtCO2/year, saving a total of 15.4MtCO2/year.

Well-performing sectors include chemicals, food and drink, concrete and paper.

Most sectors (38) met their targets. In a further 15 sectors all the facilities reporting had their Climate Change Levy discounts renewed.

This means that all but one per cent of the 9,634 facilities registered with the scheme had their CCL discounts renewed, making the scheme an official success.

The spirits industry, for example, was able to save about £2.6m a year on tax over and above their energy cost savings, based on an improvement in energy efficiency of 25% since 1999.

This is precisely the kind of achievement the policy is meant to stimulate.

This is the first CCA target period to cover participants in EU ETS Phase II, where there is no opt-out (as there was in Phase I), meaning that if a unit reduces emissions, then they may have a surplus of allowances for sale on EU ETS or banking for future use.

But Jeremy Nicholson, director of the Energy Intensive Users Group, which represents industries that consume large amounts of gas and power in the UK, says that they need help also because of the surge in energy prices.

The Group cites German competitors in such industries, who benefit from carbon tax rebates worth more than €5 billion a year, paying only €0.5 of the €35 tax.

MPs such as Pat McFadden (Wolverhampton South East, Labour) and Caroline Nokes (Romsey and Southampton North, Conservative) and especially Tristram Hunt (Stoke-on-Trent Central, Labour), chair of the all-party group that supports the sector, are also lobbying the Treasury on their behalf.

Mark Pawsey (Rugby, Conservative) recently pointed out that cement manufacturer CEMEX, in his constituency, faces an alleged £20 million bill for complying with carbon legislation.

There is talk of the climate change levy being widened and the rebate increased to mitigate the carbon price.

The carbon price floor will require industries to pay a top-up if the market price for carbon is below a the floor level.

It is primarily aimed at the energy sector to drive investment in low-carbon technology and generating capacity.

Due to the state of the economy, the carbon price is currently at an all time low. EU Allowance Units (EUAs) are down to €10.17 and Certified Emission Reductions (CERs) to €6.85.

The 10.17 figure is significantly below the anticipated level of the carbon price floor of £13 per tonne in 2013 and £30 in 2020, and not good news for the financing of carbon emission reduction projects.

(DECC recently revised its estimate of the future carbon price, to €33-£29 a tonne of CO2 by 2020.)

The fund resulting from the floor is meant to contribute to the £200 billion that is required over the next decade or more to build the low carbon future.

Any tax breaks for energy intensive industries will reduce the amount available for this purpose.

But will it be used for this purpose or just to fill the general Treasury coffers?

On 26 October Zac Goldsmith asked the Chancellor of the Exchequer just this question: whether he has plans for the recycling of revenue from the carbon price floor and the EU Emissions Trading Scheme into low-carbon projects.

Speaking for the Treasury, Chloe Smith gave as clear an answer as possible, saying that "In general, the Government considers that hypothecation, or "earmarking" revenues for a particular spending purpose, is an inefficient way to manage the public finances".

In other words: no it won't.

The Department for Energy and Climate Change is working with the Department of Business Innovation and Skills and HM Treasury on the development of a package of support for the energy intensive industries, and the results are expected to be announced on 29 November as part of the Electricity Market Reforms.

No comments: