January 2005
Emissions Scheme Threatens to Suffocate UK Industry
Manufacturers will face extra costs totalling £1.8 billion from the rising price of energy this year, with £600 million of that due to the latest anti-pollution initiative which came into force in January 2005.
The increase in operating costs will put pressure on an already fragile manufacturing recovery. The new anti-pollution initiative, the EU Emissions Trading Scheme (EU ETS), is a European plan to reduce greenhouse gases and is based on credits for carbon use. Most sectors of industry will be allocated targets for emissions of CO2. If these targets are beaten, companies will be able to sell credits to other businesses in the UK or across Europe.
Likewise, companies who exceed their pollution allocations will be forced to pay penalties or buy credits from other businesses that have made successful emissions cuts.
The EU ETS is intended to be revenue-neutral and, in theory, will not present companies with substantial costs if they continue business as usual.
However, the Engineering Employers Federation (EEF) believes that emissions trading will account for a third of the increased energy costs of industry this year. The EEF estimates that energy prices are set to increase by up to 80%, depending on the price of carbon.
The organisation is also concerned that final allocations have not yet been set, leaving businesses uninformed about the details of how the EU ETS will operate and whether they should opt out of the Climate Change Levy framework.
Employers are worried that British industry will face higher costs for energy as a result of the scheme when compared with the rest of Europe, especially if other European countries set less stringent goals for industrial pollution.
Additionally, they fear that the programme, which is intended to reduce energy use and encourage more energy-efficient production, is throwing up anomalies. For example, the steel industry burns coke in its manufacturing process and this emits large amounts of carbon, yet it is not an energy intensive operation.
Stephen Radley, chief economist of the EEF, said: “The problem with increased energy costs is that if they continue, they will begin to affect investment decisions. We are not opposed to emissions trading in principle, but we are concerned that because the rest of Europe doesn’t have as liberalised an energy market as Britain does, emissions trading could follow that same pattern and British industry would be disadvantaged.”
The EEF is pressing the Chancellor to conduct an inquiry into energy prices because it says they are alarmingly outpacing those in the rest of Europe.
The European Union has committed itself to reducing carbon dioxide emissions by 8% from 1990 levels by 2012 as part of its Kyoto agreement. However, in addition, the UK has pledged to cut CO2 emissions by 20 per cent by 2020.
The emissions-trading scheme is the first internationally traded anti-pollution programme in the world.
To discuss how emissions trading may affect your business, how to reduce your risk and how to best exploit the opportunities, contact Aneeta Patel on 024 76 279 000.
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