Backbench Business — Energy-intensive Industries

Bill Presented — Recall of MPs Bill – in the House of Commons at 11:22 am on 11th September 2014.

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Photo of Alex Cunningham Alex Cunningham Labour, Stockton North 11:22 am, 11th September 2014

I beg to move,

That this House
welcomes the measures announced in the 2014 Budget Statement which reduce cost pressures created by the imposition of carbon taxes and levies;
notes that without such measures, there is a serious risk of carbon leakage;
further notes, however, that UK manufacturing still pays four times as much for carbon compared with main EU competitors because of taxes such as the carbon floor price;
and calls on the Government to build on the measures announced in the Budget by producing a strategy for energy-intensive industries, as recommended by the Environmental Audit Committee in its Sixth Report of Session 2012–13, HC 669, in order to produce a fairer and more efficient system which delivers genuine potential for investment in a low-carbon economy.

I am delighted to have the opportunity today to open this debate and to move the motion in my name and that of Ian Swales. I am grateful to the Backbench Business Committee for granting time in the Chamber for this important debate about the impact of taxation on our country’s energy-intensive industries, which employ or support up to half a million jobs.

I know that other hon. Members, many of whom have energy-intensive industries in their constituencies, would have liked to be here today to contribute to this debate, but have rightly chosen to travel to my homeland to chat to my fellow Scots who have yet to make a final decision on whether or not to vote to keep the United Kingdom together. Just as I am sure they are here with us in spirit, I am sure that most, if not all of us, recognise and support their mission, which will have a direct impact on the issues that we are discussing today.

Before I get into the main body of my speech, I formally declare my membership of the all-party parliamentary group for energy-intensive industries, which campaigns on the issues to be raised today and whose members helped to secure this debate. Much of the debate will centre on the impact that carbon taxes and levies are having on our energy-intensive industries—EIIs—and will seek to encourage progress in working towards a strategy for EIIs that will deliver genuine potential for investment in a low-carbon economy.

Whether it be through petrochemicals, nitrate fertiliser or steel production, the Tees valley, where my Stockton North constituency sits, has long been synonymous with heavy industry and the thirst for energy that it necessarily entails. The town of Billingham, which is home to a large chemical centre, has played a particularly significant role in Britain’s industrial back story. The cooling towers and chimney stacks that still adorn, if not dominate, parts of the region’s skyline—along with the famed transporter bridge—are testimony to Teesside’s proud industrial heritage, but the decline of those industries will be hastened if actions are not taken to lessen the burdens imposed by carbon taxes and levies.

As Member of Parliament for Stockton North, I shall be speaking for Teesside and highlighting the various hurdles that many of our EIIs are facing there; but as a member of the energy-intensive industries all-party parliamentary group, I shall be speaking not just out of local or regional interest, but to highlight issues that are having an impact on industries the length and breadth of the country. The reach and scale of the problems extend far beyond the north-east, and to products such as cement, glass and ceramics.

If I may borrow a phrase from my hon. Friend Dr Whitehead, the next Government will come to power at a time when the three prongs of an “energy trilemma” are driving potentially competing agendas that must be addressed by any emerging energy policy. That means that, at the same time as taking steps to guarantee that our energy supply is secure, we require measures to ensure that energy prices for consumers, both domestic and industrial, are affordable, as well as movement towards decarbonising supplies to ensure that the energy sector contributes to carbon reduction rather than undermining it.

As I have already made clear, EIIs form the cornerstone of the United Kingdom’s manufacturing sector and, by virtue of that, the cornerstone of the wider economy. Figures for the sector vary, but the Environmental Audit Committee has suggested that EIIs employ 125,000 people in the UK. The UK’s foundation industries, which have a significant overlap with EIIs and account for higher numbers of supply-chain jobs, are reckoned to employ nearly half a million people—which amounts to roughly 20% of total manufacturing employment—generating gross value added worth £24.6 billion. Those industries account for between 3% and 4% of GVA across the UK economy as a whole. In the Tees valley alone, the processsector consists of more than 1,400 local firms in the supply chain, generating sales worth more than £26 billion a year and £12 billion of exports and comprising 50% of the UK’s petrochemicals GDP, while producing 60% of its chemical exports.

As well as being a key source of productivity, investment and employment, EIIs are central to our successful transition towards a low-carbon economy, manufacturing such “green economy” products as lightweight plastics, insulation, and components for wind turbines. For every tonneof carbon dioxide produced by the chemicals industry, more than two are saved downstream by its products. However,if we are to meet the carbon reduction targets set by the last Government—which, as Members will know, bind the UK to reducing carbon emissions by a third of 1990 levels by 2020, and 80% by 2050—significant reductions in emissions are required throughout the economy. In addition, as part of its EU obligations, the EU must obtain 15%of its energy consumption from renewable sources by 2020, which represents a fourfold increase on 2010. Electricity generation is expected to contribute most to the meeting of that target, primarily through the use of wind and nuclear power generation, but also through carbon capture and storage.

While the decarbonisation of electricity generation will be critical, along with measures to improve the energy efficiency of homes and transport, industry—which accounts for about a quarter of UK emissions—is rightly expected to make a substantial contribution. Given that EIIs account for more than of 50% of industry-related emissions, they are expected to deliver reductions of at least 70% from 2009 levels by 2050. However, those obligations, although noble and justifiably ambitious, come with a set of associated difficulties.

EIIs operate in highly competitive global markets, and energy is typically their largest production cost. For instance, INEOS, which provides several hundred jobs at its Seal Sands site in Stockton North, tells me that electricity constitutes 70% of production costs associated with its manufacture of chlorine. As a consequence, energy price is business-critical, and it is only possible for the industries concerned to operate in countries with competitive energy prices. In other words, energy costs are influencing, if not directing, investment decisions for EIIs. At a time when the UK’s energy prices compare unfavourably with those in much of Europe and the rest of the world, that is bad news for the manufacturing sector as industries are driven towards more competitively priced markets such as the United States.

Let us take the cement industry, for example. Cement imports currently stand at 14% of UK consumption, up from just 3% in 2001. As the UK has enough cement import capacity to replace domestic manufacturing, there is a real risk that industries in the sector could take the decision to offshore production where costs would be lower. Such a decision would have damaging knock-on consequences. Not only will cement and concrete be vital for the construction of a new, low-carbon energy infrastructure, but the UK would stand to lose out on £2.84 of economic activity generated for every £1 spent on construction. Indeed, such “carbon leakage” can already be seen in the energy-intensive sector, with high-profile closures caused by these uncompetitive energy prices. BASF and Tata, for instance, last year announced closures resulting in over 600 job losses, doubtless a decision influenced by the energy costs, which are more than 50% higher than those of direct competitors elsewhere in Europe.

At the same time, other international companies are redirecting investment en masse to more competitive locations. While wholesale prices are driven by high gas prices, that is distorted by the very high policy costs imposed in the UK. Energy costs for industrial users in the UK are around 45% higher than in France and around 70% higher than in Germany—a competitiveness gap that is wider still in comparison with the US and China, where wholesale prices and policy costs are extremely low.

A stark example that hammers home the extent of this competitiveness gap is offered by GrowHow, based in my Stockton North constituency and at Ince near Chester, which has told me of the struggles it faces as a result of relatively high energy costs. Gas—GrowHow’s main feedstock—costs more than three times that of their Russian competitors, who operate on state-fixed gas cost. Similarly, German electricity prices on a delivered basis for very large users in 2013 equated to €38 per MW against £70 per MW in the UK.

The situation is set to get much worse over the next decade. The Department for Business, Innovation and Skills forecasts that UK energy and climate change policies will add around £30 to every megawatt of electricity for EIIs by 2020, substantially more than for any other country in the world. Needless to say, that is a huge threat to the entire energy-intensive sector—a threat that the next Government, regardless of colour or composition, must take steps to meet.

Photo of Joan Walley Joan Walley Chair, Environmental Audit Committee

I congratulate my hon. Friend on securing this debate. Does he agree that the huge energy security and energy affordability issues that we face place our manufacturing industries right at the cutting edge of how this debate is to be taken forward, but we must also not lose sight of the need in the long term to decarbonise, and in doing that we will be making our manufacturing industries more competitive? As my hon. Friend rightly says, there is a short-term issue in terms of transition to that low-carbon economy and it is for that reason that the Environmental Audit Committee, which I chair, recommended that there should be a particular strategy for companies that are intensive users of energy. We have not really seen any progress on that, and I hope that when the Minister replies to the debate we can really look at how we can make our manufacturing companies competitive, losing no time in making sure that we have an international agreement on climate change—because we must not lose sight of that—but keeping our manufacturing processes there in the short term to be there for the long term.

Photo of Alex Cunningham Alex Cunningham Labour, Stockton North

My hon. Friend gives a comprehensive summary of where I think we should be, and I hope to develop some of the points she made later in my speech. This is not just about the short term; it is about planning for the future as well.

Of course, the situation with regard to these energy costs is set to get much worse over the next decade. As I have said, the Department for Business, Innovation and Skills forecasts that UK energy and climate change policies will add around £30 to every megawatt of electricity for energy-intensive industries by 2020—substantially more than for any other country in the world.

Photo of David Davies David Davies Chair, Welsh Affairs Committee

I have a great deal of sympathy with what the hon. Gentleman is saying. Does he agree that it is now time to scrap these ludicrous carbon taxes?

Photo of Alex Cunningham Alex Cunningham Labour, Stockton North

Carbon taxes have been imposed by consecutive Governments for very good reason, but if our industries are to be competitive, the time has come to examine them carefully and to determine how we go forward. This is not just about taxation, however; we must also take into account the issues that my hon. Friend Joan Walley raised a moment ago.

Needless to say, the rise in energy costs is a huge threat to the energy-intensive sector, and it is one that the next Government must address. That brings me back to the trilemma that I mentioned. The present Government have designed policies that focus on reducing carbon emissions from industry, but those policies, influenced by regulatory activities in the EU, rely heavily on measures that seek to enhance energy efficiency while putting a price on industry’s carbon emissions. A cap-and-trade market for carbon was created through the EU’s emissions trading system, introduced in 2005. That market spans the EU and aims to reduce emissions at the lowest possible cost while incentivising low-carbon investment by making emitters financially liable for their emissions. It is intended that, from 2013 onwards, the capping level will fall by 1.74% a year for power stations and industry, so that total emissions are 21% lower in 2020 than they were in 2005.

The Government responded to industry concerns with a compensation package of £250 million announced in Budget 2011 for the period 2013-15, boosted by a further £150 million and extended to 2016 in Budget 2013. But, by December 2013, the emissions trading system compensation scheme had paid out only £18 million to 29 companies in the energy-intensive industries sector. Part of the problem is that although member states are permitted to compensate those at risk of carbon leakage arising from the emissions trading system, there is no obligation to do so. This results in energy-intensive industries being burdened with additional costs, be it through burning fossil fuels and buying allowances to match their emissions, or indirectly through the higher electricity prices that result from generators burning fossil fuels. As we know, the costs are passed on to consumers.

However, because the weak carbon price in the emissions trading system was deemed too low to incentivise lower-carbon investment, the Government then added a further policy cost to the price of energy by introducing a UK carbon price floor to top up the carbon price to an acceptable target rate. This undoubtedly limits the competitiveness of EIIs, many of which are unable to pass those costs through to their customers.

In my role as a member of the all-party group—not to mention as an MP representing an industrial centre—I have regular contact with those in the energy-intensive sector and frequently listen to the issues that they find themselves contending with. Through those conversations, I understand that no other country has imposed a policy similar to the carbon price floor here in the UK, nor are there plans to do so. It has been widely acknowledged that the carbon price floor does not, in fact, reduce emissions from power generation; those are capped at EU level. Instead, the carbon price floor significantly increases the proportion of decarbonisation costs that is borne by UK electricity users. Those are costs that drive investment decisions and can lead to companies relocating overseas rather than developing their businesses in the UK.

To be sure, the EIIs that I have spoken to strongly support the drive for greater energy efficiency. In many cases, energy efficiency is more cost-effective than subsidising low-carbon generation. For instance, GrowHow tells me that, since 2010, it has reduced carbon emissions associated with its main fertiliser product by 40%. By reducing nitrous oxide emissions, it has made savings equivalent to more than 4 million tonnes of CO2, which means that, relative to its competitors, it is very efficient, and as much as three times as efficient as Russian producers.

Despite the fact that industry has delivered substantial energy and carbon savings over recent decades through investment and innovation, the cumulative impact of energy and climate policies is now putting extraordinary pressure on EIIs, necessitating continuous improvements in energy efficiency to remain competitive—although that is not to suggest that they are not doing that anyway.

Indeed, as industries approach the limits of what is realistically achievable with current technologies, the capacity of businesses to invest in the UK is ultimately undercut and the sustainability of the entire sector in the UK placed under threat. That, of course, brings with it the simultaneous possibility of the loss of jobs and investment to other countries with less vigorous climate change policies. That is disheartening, not just because of the obvious negative impacts for local economies and for the national economy more broadly, but because it overlooks the necessity to safeguard our existing industries and the employment they provide in order to make that all-important transition towards a low-carbon economy. Only through the continued provision of support to these industries can we hope to attract new investment.

We need look no further than Air Products in my constituency for an example of the types of investment in low-carbon industries that successful industrial clusters can attract. Shortly after committing to invest in building one of the world’s largest renewable energy plants on Teesside, the company announced investment in a second similar plant, influenced no doubt by the favourable business conditions that will see the wide availability of feedstock while allowing for local knowledge, skills and infrastructure to be used constructively and competitively. It speaks volumes that Sembcorp is developing with SITA a similar 35 MW plant on Teesside also to provide electricity from waste, further highlighting the potential for investment in the low-carbon economy that can result from the development of strong industrial clusters.

There can be no doubt that the Tees valley’s successful process industry cluster is central to the region’s position at the centre of the UK’s move towards a high-value, low-carbon economy, attracting significant investment over recent years and developing a reputation for green excellence. The area continues to work with government on a low-carbon action plan, on industrial carbon capture and storage, and on industrial heat networks as part of the city deal agreement, leading the way on bio-industries and energy from waste while increasingly being seen as a destination for green investment.

Such examples confirm the UK’s potential competitiveness on the international stage, but EIIs need access to secure, internationally competitive energy supplies if they are to continue locating in the UK and investing in areas such as the Tees valley. That means having a level playing field for EIIs within the single EU market, taking account of the cumulative burden of climate policies on industrial energy prices. We cannot mistake the fact that the Chancellor deserves credit for capping the carbon price floor at £18 per tonne of CO2 from 2016 to 2020 instead of allowing a linear rise to £30 per tonne by 2020, as was originally planned. Calculations indicate that such a move could save UK EIIs in the region of £4 billion over three years, but that cannot disguise the fact that industries are still exposed to an expensive unilateral tax and received no form of compensation for the first year of its operation. With the compensation being announced a few years at a time, there is no long-term certainty about business costs, which deters investment in the sector in the UK.

Estimates suggest that the carbon price floor has already added 5% to EIIs’ energy prices and budget reforms will cap the impact at 8% from 2016 to 2020. Although that is certainly an improvement on the original trajectory, which would have added 14% by 2020 and 26% by 2030, we must recognise that even after this modest reform UK industrial electricity users still face four times the carbon cost borne by EU competitors, let alone competitors outside the EU, which do not face carbon costs at all.

Similarly, EU energy and environmental state aid guidelines published earlier this year limit compensation for the impact of the Government’s carbon price floor on electricity prices, so it can be paid only to EIIs in sectors already eligible for emissions trading system compensation. The Government therefore have no legal means of compensating EIIs for the impact of the carbon price floor in sectors such as cement, glass and ceramics, even where clear evidence exists of energy intensity and risk of carbon leakage. So despite the fact that indirect emissions trading system costs to the cement sector during the period 2014 to 2020 are estimated at £82.7 million, and the cost of carbon price support over the same period is estimated at £104 million, the European Commission’s guidelines conflict with UK domestic policy to allow support against the carbon price support tax for the cement industry.

Incidentally, representatives from that industry have pointed out that cement did not make it on to annex II of the EU ETS indirect CO2 aid guidelines because the tests that were applied were based on trade intensity of cement, which is currently only moderately traded, rather than the raw product before grinding—cement clinker—which is traded much more intensely. That leads to the conclusion that unless every EII sector is deemed eligible at the EU level for emissions trading system compensation, the only equitable solutions available to address this industrial competitiveness problem are withdrawal of the carbon price floor or efforts to reform the emissions trading system itself to encourage a stronger, more robust carbon price signal.

There can be no doubt that the UK must strive to avoid meeting its carbon targets by offshoring state-of-the-art energy-efficient EIIs. The objective must be sensible and economically sustainable decarbonisation, not de-industrialisation. In that respect, the UK’s status as the least energy-intensive economy in the G7 should perhaps be treated with caution rather than celebration.

We must think outside the box and look beyond punitive taxation schemes for alternative means to decarbonise, sending a signal to the rest of the world that it is possible to retain industry and decarbonise simultaneously and leading by example. A report last year by the American Chemistry Council found that 97 chemical industry projects worth a staggering $71.7 billion have been announced as a result of the US’s shale gas boom.

As a result of shale gas extraction, the price of energy and petrochemical raw materials in the US has plummeted, allowing a boom in the chemicals industry—so much so that INEOS tells me that the majority of its profit now comes from one-third of its business sales in the US. Although I am under no illusion that the UK will be able to replicate the US’s experiences entirely, extracting shale gas is likely to reduce energy and petrochemical raw material costs significantly. I also appreciate that fracking for shale gas is a controversial process and recognise the potential risks that it brings. But the appropriate response to concerns about the safety and environmental impact of shale gas extraction is to ensure that we have the right regulatory and monitoring framework in place. Any questions are best answered on the basis of evidence gathered from carefully regulated and comprehensively monitored exploration.

Although there is little prospect of fracking in north-east England, the abundant offshore coal reserves and potential for gasification present an opportunity to secure the future of EIIs—both in the Tees valley and the wider UK—while safeguarding thousands of jobs and helping to drive a much-needed economic recovery in the area. A failure to explore such options further would be an opportunity wasted.

Similarly, with the Tees valley already producing around 50% of the UK’s hydrogen and having an established hydrogen pipe network, the application of carbon capture and storage, as detailed in the region’s city deal, along with investments such as Air Products and the potential extraction of hydrogen from industrial sources mean that there is a significant opportunity to produce green hydrogen in Tees valley, which is capable of supplying the increasing demand for hydrogen fuel cells.

Our EIIs need support through this place, with a re-examination of taxes, carbon capture development and new energy sources. As recommended in the Environmental Audit Committee report, we need to set that path for maximum feasible decarbonisation, and I hope that we will do that soon.

Photo of Mark Pawsey Mark Pawsey Conservative, Rugby 11:47 am, 11th September 2014

It is a great pleasure to follow Alex Cunningham and I congratulate him on securing a debate on such an important issue. I support the motion on energy intensive industries, and wish to speak about cement manufacture. The hon. Gentleman has already spoken about construction materials, but it is to that sector that I wish to address my remarks.

My constituency is best known as the birthplace of rugby football, but for many, it is the home of Rugby cement. Cement has been produced in the Rugby area for more than 150 years, starting with a small-scale lime production at Newbold in 1865. Operations moved to the present site in Lawford road in the 1960s. Today, the plant, which is operated by CEMEX, is one of the most modern in the world and represents a total investment of £200 million. It has the largest kiln in the UK, and a production capacity of 1.8 million tonnes of cement per annum. It provides direct employment for many people, involving a large number in the supply chain. It is estimated that CEMEX contributes £25.5 million per annum to the local economy in Rugby. On the assumption that the average house contains about 18 tonnes of cement, the Rugby works produces enough cement for the construction of more than 72,000 houses.

The energy used in cement manufacture is not used to raise the temperature in the kiln. The kiln has traditionally burned coal but is increasingly using alternative fuels, which, in Rugby’s case, means chipped vehicle tyres and waste-derived fuel. Waste-derived fuel is such an important component that a new plant to provide it and to make a material known as Climafuel is under construction in my constituency. That fuel is derived from household and commercial waste and is making effective use of material that years ago would simply have been put into holes in the ground. Rather than in the kiln, the cement manufacturing sector uses high levels of electricity to transport material around the plant and to grind down the grey clinker that comes out of the combustion process into the grey powder that we would all recognise as cement.

I want to add my concerns to those already expressed by the hon. Member for Stockton North that the cost pressures of the imposition of carbon taxes will mean that it will become uneconomical to manufacture cement in Rugby. Part of the problem, as he has set out, derives from EU legislation and it is good that the Government have recognised the pressure on UK manufacturers caused by EU environmental legislation and that they have applied to the EU for compensation to mitigate the impact. The problem for cement manufacturers is that the European Commission, which published environmental protection and state energy guidelines on 19 May 2014, failed to include the cement sector among those that will receive compensation against the cost of the carbon price support. Regrettably, only those sectors eligible to receive support against the EU emission trading scheme’s indirect CO2 costs, which are listed in annex II, can qualify for support for other carbon-related costs. Cement manufacture is not included and therefore will not benefit.

It is important to note that the carbon price support tax, which affects the UK only, will put the UK cement industry at a disadvantage compared with those in other EU countries. It also puts the cement manufacturer at a disadvantage against the manufacturers of other materials. For example, steel attracts compensation for both EU ETS indirect costs and the carbon price support tax.

The cost to the cement sector of the ETS over the period 2014-20 is an estimated £82.7 million and the cost of carbon price support over the same period has been estimated at £104 million. The cement manufacturing sector will have to meet those costs if no compensation is received and they will merely add to the cumulative burden that the sector is facing as a result of energy and climate change policy.

The situation faced by cement manufacturers is unfair. Construction products must be allowed to compete on a level playing field, because if they are not UK manufacturing capacity—that means jobs—will be lost. Although cement is a heavy product, it travels easily and cheaply on a barge and can be imported from all over the world. There is enough cement manufacturing capacity in the UK to supply all our needs, but cement imports stand at 14% of UK consumption, up from 3% in 2001. Cement is coming in from many parts of world. An international company such as CEMEX, which runs the plant in my constituency, is aware of the cost of producing a kilo of cement in locations across the world and if the cost is too expensive in Rugby, it will simply not continue to manufacture there.

There are steps that can be taken, and that process has started. The first is a full or partial review by the EU of the emissions trading scheme, which is taking place. The Commission might amend it before the applicable date of 31 December 2020, and I believe the Commission should urgently review the cement industry’s case. I understand that the European cement industry’s trade body lawyers have communicated with the Commission, which has said that it has

“no plans currently to reopen the ETS State aid guidelines and/or the Annex with the sector” but that it

“would however be interested to hear the industry’s views on what may have changed for the cement sector”.

Therefore, there is a window of opportunity to address the problems that the cement industry faces.

The second change that would benefit the sector is the Government taking action by accelerating renewables compensation and their compensation of certain sectors for higher energy costs resulting from the renewables obligation. The UK plan is to implement a scheme from 2016-17, but that could be brought forward to 2015-16 if there were to be such an announcement in this year’s autumn statement. I understand that the Department for Business, Innovation and Skills has already informed the Mineral Products Association that its favoured option is to review or amend the ETS, if the Commission will allow that.

Will the Minister respond to these points? On 26 June, the then Business Minister, my right hon. Friend Michael Fallon, said:

“I intend to ask the new Commission this autumn for an early review of the ETS and to include new sectors, such as cement, that have missed out so far.”—[Hansard, 26 June 2014; Vol. 583, c. 456.]

Will the Minister confirm that she will honour that undertaking and raise the issue, as promised, with the Commission? When she writes to the Commission, will she seek a review of annex II of the ETS indirect CO2 aid guidelines and stress the urgency of the need for an early and positive decision, because of its influence on the UK-only carbon price support tax?

Will the Minister agree to ask the Commission to give priority to issuing state aid approval following a favourable review of annex II of the ETS indirect CO2 aid guidelines? Does she accept that the UK cement industry is at a disadvantage compared with its European counterparts and other, competing construction materials that attract EU ETS and carbon price support compensation?

The consequences of the actions taken by this Government mean that our economy is the fastest growing in the G7, and construction is at the forefront of that economic growth, so it would be a tragedy if UK manufacturing were unable to continue to contribute to that growth because it had been priced out by a burden imposed by environmental taxes and levies, which make it less expensive to manufacture overseas. Instead, businesses will simply ship materials in.

Photo of Chi Onwurah Chi Onwurah Shadow Minister (Cabinet Office) 11:57 am, 11th September 2014

I welcome this debate on energy-intensive industries, and I thank my hon. Friend Alex Cunningham and Ian Swales, as well as the Backbench Business Committee, for securing it.

I also thank you, Mr Speaker, for your flexibility in enabling me to contribute. Unfortunately, constituency engagements mean that I might not be able to stay for the winding-up speeches. I apologise to the Minister and to my hon. Friend Catherine McKinnell for that. I will read Hansard with increased interest.

I am keen to contribute to this debate because energy-intensive industries are such an important part of our economy, as my hon. Friend the Member for Stockton North said in his excellent opening remarks. They employ about 200,000 people directly in the UK and support 800,000 jobs throughout their supply chain. They are an important part of the real economy, particularly, I might say, outside the south-east. My constituency is home to several energy-intensive businesses, such as Michell Bearings, which has been in Newcastle since 1920. There are many more throughout the north-east.

If we can look back that far, 160 years ago the north-east—one of the most innovative regions in the world—was leading the UK into the first, carbon-based industrial revolution. Sir Charles Parsons established his engineering works in Newcastle and he invented the multi-stage steam turbine, which was the iPhone of its day and helped to power Britain into a new era. Mosley street in my constituency was the first street in the world to be lit with electric light—something to which we have become all too accustomed.

Newcastle university, also in my constituency, was founded on local strengths such as marine, electrical, civil and chemical engineering, as well as agriculture and medicine, and they remain key strengths of the city and the university today: global reach and local roots. Today, the region remains a global base for manufacturing innovation. It is the only English region with a positive balance of trade. As well as the industries and companies that my hon. Friend the Member for Stockton North spoke of, we have fantastic facilities such as the National Renewable Energy Centre in Blyth and the Centre for Process Innovation on Teesside, which were both set up with the help of One NorthEast—regrettably abolished by this Government. In Newcastle, we have recently opened the Institute for Sustainability.

Energy-intensive industries and carbon reduction are crucial to the north-east economy. There is not, and should not be, any contradiction between the two. The transition to a low-carbon economy is a huge opportunity for the UK, with the potential to be a major source of jobs and growth. However, that transition is being put at risk as a direct result of this Government’s failure to develop a long-term, sustainable energy policy. They have failed to get behind green businesses. The UK is falling behind with investment in green growth, meaning that jobs and industry that should be coming to this country are now going overseas. I have spoken to the senior management at companies that would prefer not be named who have said that the lack of a clear long-term energy strategy is putting off investment that could create jobs tomorrow, next month and next year. That is clearly detrimental to our economy overall.

The lack of an overall energy strategy and an integrated strategy for supporting energy-intensive industries is putting jobs and investment at risk. Conflicting signals from this Government about support for green energy versus terminology such as “green crap”—I think that was it—has seen the UK’s attractiveness to renewables investors slide down international tables. If we want to support the real economy and to build a long-term, sustainable economic environment, businesses need to know what they can expect from Government. They need long-term regulatory and policy certainty, and they are not getting that from this Government.

As my hon. Friend said, the carbon price floor was intended to create a floor underneath the EU emissions trading scheme, but since the collapse of the ETS price, energy-intensive British firms have been faced with far higher energy bills than European competitors. We need to know how Government are going to support these vital industries over the next five, 10 and 20 years, because that is the kind of life cycle they have for building plant and investing in countries. We need a long-term energy policy that supports and drives green growth and creates jobs in a low-carbon economy—a policy that gives investors the certainty and confidence they need to invest by committing to decarbonising the power sector by 2030. Yet as a direct result of this Government’s mixed messages, we are falling behind.

I have always considered myself a champion of new technologies in this House and elsewhere. When energy-intensive industry representatives first spoke to me of their concerns about some of the Government’s energy policy, I asked them what they were doing to improve their energy efficiency. Were they, for example, asking the Government and policy makers to subsidise obsolete industrial processes? Following further investigation, I was made to understand that many of the processes related to reducing energy consumption and improving energy efficiency are reaching the limits of the laws of physics. I am sure we are not all as familiar as we perhaps should be with the periodic table and the chemistry education we received, but I think we can all understand that a certain amount of energy is needed to change the state of molecules and to change gas to liquid. We have made so much progress in the efficiency of many such processes that it is not possible to go further. Given that so many of the processes are essential to our manufacturing base and a balanced economy, it is unarguable that they need to be supported during this transition.

The energy costs of energy-intensive industries can be more than three quarters of their addressable costs, and they are often already operating in highly competitive markets. There is also already a considerable incentive for them to innovate and become more energy efficient.

The industries need support from Government and a clear, long-term direction of travel. They need action in a number of areas, including fixing the broken energy market, as Labour has promised to do; exploring new sources of green energy, such as clean coal; and specific and long-term support so that they can continue to compete internationally.

In government, the Labour party was more courageous in this area than many others. The Climate Change Act 2008 made us the first country in the world to introduce a legally binding framework to tackle climate change.

Photo of David Davies David Davies Chair, Welsh Affairs Committee

I am listening with interest to the hon. Lady, but does she not agree that the Climate Change Act is actually one of the reasons why we got ourselves into this awful situation in the first place? We are taxing industries in order to try to solve a problem that I am not even sure exists.

Photo of Chi Onwurah Chi Onwurah Shadow Minister (Cabinet Office)

I thank the hon. Gentleman for his intervention, but his final comment gave away his position. He said that we are taxing a problem he is not even sure exists, but the consensus on the need to address climate change is global and we certainly owe it to our children and our children’s children—[Interruption.] The hon. Gentleman is chuntering, but I am afraid I cannot follow him. The Climate Change Act is not responsible for climate change; it is a response to climate change and one that is necessary for the long-term sustainability of our economy and the global economy.

Photo of Angela Smith Angela Smith Shadow Minister (Environment, Food and Rural Affairs)

Are not the industries under discussion also totally behind the drive towards a green economy, because that in itself creates opportunities for new products, innovation and economic growth?

Photo of Chi Onwurah Chi Onwurah Shadow Minister (Cabinet Office)

I thank my hon. Friend for putting very clearly—I should have done so myself—the position of many in the energy-intensive industries, who see the need for a long-term future for their significant investments and wish to see a more competitive transition towards it.

Photo of David Mowat David Mowat Conservative, Warrington South

I have been listening very carefully to the hon. Lady. To say that members of the energy-intensive industries want us to go further and faster than other countries with the green stuff is a bit of a leap. Although no one disputes that we must decarbonise, the issue we need to address—the hon. Lady has not yet done so—is the extent to which we need to do that more quickly and more unilaterally than others. That is a fair question.

Photo of Chi Onwurah Chi Onwurah Shadow Minister (Cabinet Office)

I think that the hon. Gentleman has misinterpreted the remarks of my hon. Friend Angela Smith. She said not that the energy-intensive industries seek to go further and faster, but that they recognise the need to transition to a green economy if they are themselves to have a long-term economic future in this country and globally. I certainly support that position.

Photo of David Mowat David Mowat Conservative, Warrington South

I will not intervene on the hon. Lady again, but as she said that I had misinterpreted the point, I want to come back on that. The issue is that we in this country are doing things unilaterally that other parts of the EU are not doing—it is not an EU issue—and that is a problem for many of the people, including my constituents and perhaps those of the hon. Lady, who derive their income and prosperity from the 900,000 jobs in energy-intensive industries. The valid point for us to debate is the extent to which we should be out of step with other countries, including in other parts of Europe.

Photo of Chi Onwurah Chi Onwurah Shadow Minister (Cabinet Office)

It was of course the hon. Gentleman’s Government who introduced the carbon floor tax, but I very much agree that it is legitimate for us to discuss such subjects, which is why I was so keen to take part in this debate. The way in which the UK leads in moving to a sustainable economic future is itself an opportunity for jobs and innovation, but it should also protect our energy-intensive industries.

I shall soon bring my remarks to a close, but I wanted to say that the previous Labour Government established the Sustainable Development Commission, the Committee on Climate Change, and the Warm Front scheme to tackle fuel poverty, and they invested in low-carbon industries. The economy was growing, but the air quality in our towns and cities nevertheless improved. Our CO2 emissions fell by 10.8 million tonnes in our final year in government, when our greenhouse gas emissions were 66 million tonnes lower than in 1997. We helped 5 million households to get better insulation and keep warm, which reduced emissions and saved consumers money at the same time.

The next Labour Government will carry on that work. We recognise that a secure, clean energy mix is vital to powering our economy, meeting our climate change obligations and protecting customers from bill rises driven by events overseas. A long-term strategy should look at and support innovative new techniques, such as carbon capture and storage and underground coal gasification. Five-Quarter, a company spun out from Newcastle university, is leading the world in looking at the development of underground coal gasification as a clean way to deliver electrical power.

My key point is that aggressive action to tackle climate change is not incompatible with a strong manufacturing base. With the right strategies and support in place, the north-east can be the vanguard for a UK that competes globally in manufacturing and labour-intensive industries, while also setting an example in tackling climate change.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar 12:13 pm, 11th September 2014

I congratulate Alex Cunningham on securing the debate. On this issue, I regard him as an hon. Friend, and I was delighted to support his motion. Our constituencies are divided only by the River Tees, but they are joined by many pipelines.

I have taken a keen interest in these issues since I entered the House. I worked in the electricity industry for five years, and in an energy-intensive part of the chemical industry for more than 20 years, so I am very familiar with many of the issues.

As the hon. Gentleman said, the Tees valley is a “hotbed”—an interesting word to use—of such businesses. In fact, it has 18 of the 30 largest carbon emitters—energy-intensive industries—outside the energy sector in the UK. My constituency has the Sahaviriya Steel Industries steelworks, Tata Steel activities, Sabic petrochemicals and Lotte petrochemicals, which are some of the biggest businesses, as well as many others.

As the hon. Gentleman said, there is a proud history of such businesses in the north-east. On the wall of my office in Portcullis House is a picture of Lambeth bridge lying in pieces before it came down from Middlesbrough to be installed close to this place. When I took the Secretary of State for Business, Innovation and Skills around the Tata beam mill in my constituency, the work force were making beams for the new World Trade Centre. They told us proudly that their beams are in nine of the 10 tallest buildings in the world. That emphasises the point made by Chi Onwurah, which is that steel cannot be melted without using a great deal of energy. Steel beams cannot be made without using a great deal of energy. There are physical and chemical limits to what companies can do.

When I first became an MP, one of the key requirements for me was to get the steel works in my constituency going again. It will be of no surprise to Members that I therefore had to meet Ministers at the Department of Energy and Climate Change. The new owners wanted reassurance about the UK’s energy policy and an assurance that they would get the emissions allowances that were required to restart the plant. The owners were probably slightly naive and did not ask enough questions about how many issues they would face on the energy front. They have been surprised by the depth and breadth of the various environmental obligations on them.

As Members have said, Governments in other parts of the world are nowhere near as aggressive towards energy-intensive industries as ours seem to be. The former Minister of State, Department of Energy and Climate Change, Gregory Barker, who was recently moved out of office, was told by his civil servants that energy costs in the UK were not out of line with those in other countries. That is the line that Ministers were being sold. He visited Germany because of the representations that he kept hearing from industry and was shocked by what he found. He had not realised that industry gets such a lot of support in Germany and that industrial energy costs can be as low as half the cost of domestic energy. The comparisons that the hon. Member for Stockton North has given became clear to him.

I was keen, along with other Members and particularly Angela Smith in the early days, to form the Energy Intensive Users Group. The group was originally envisaged as an offshoot of the all-party parliamentary group for the steel and metal related industry, but we realised that it was a far bigger issue.

Photo of David Mowat David Mowat Conservative, Warrington South

The hon. Gentleman made the important point that Germany’s electricity costs for energy-intensive industries are substantially lower than ours, even though its domestic energy costs are substantially higher, because it has a cross-subsidy. Does he know, or does anybody know, why that is not an issue in respect of state aid?

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar

The hon. Gentleman makes an extremely good point, which I will return to later. When I see the UK’s attitude to these sorts of policies, I often feel like we are playing cricket, while other countries are playing rugby, boules or other sports that we do not recognise.

At the first meeting of the Energy Intensive Users Group, I was stunned not just by the number of outside attendees from industry, but by their seniority. We quickly realised that it was a huge issue that faced many industries, some of which have been mentioned. I do not think that paper has been mentioned. That is yet another industry that sent a representative from its trade body. As a result, there has been a great deal of representation to the Government. I am pleased to see at least some bending in response.

UK businesses that are involved in the generation and consumption of energy are saddled with up to seven different carbon taxes from the UK and Europe. Interestingly, even the senior executives of those businesses cannot always describe clearly what all the taxes are and what they do. Despite the action that the Government are taking, the trends are not great. It is estimated that political costs will increase the electricity bills of industry by a third by 2019-20. Policy makers do not seem to understand that if a company spends millions of pounds a year on energy, it already has quite an incentive to use less. It does not need to be beaten with a stick by the Government to persuade it to use less energy, let alone seven sticks. These companies know that they are spending a lot of money on energy, and are already doing a lot about it. They know that energy costs are a competitive issue, whether there are taxes or not. The irony of a heavy tax burden is that it removes cash from those companies that they could otherwise devote to energy-saving initiatives. Many companies work on thin margins or in commodity businesses that do not have high margins. The more taxes they pay, the less likely they are to be able to invest in reducing carbon consumption and generation.

A Minister from the Treasury rather than from the Department of Energy and Climate Change is responding to this debate, and I wish to ask about the attitude of the Treasury towards these taxes. Does it take the broad view about business competitiveness, look at the overall picture, and compare the taxes being rendered with those rendered from Europe, or is it just a way of raising money? These businesses are almost all competitive and traded internationally, so in this regard the UK is no more an island than the EU is. Our policy decisions affect these businesses on an international basis.

David Mowat mentioned the EU. The minute we want anything done, the standard response from civil servants is “State aid”. That is a perfect method of obfuscation and delay, which, in many areas, we as politicians are buying when we should instead be fighting a lot harder. I know there are specific issues with the steel industry and the EU, but many other industries are not as limited. Politicians should not allow state aid to be used as an excuse for delay or for no action, particularly given that some of the things we are talking about are, ironically, UK-only initiatives. I cannot see how the European Union can interfere with initiatives such as the carbon price floor, which are taken only in this country. I would like Ministers to be a lot more aggressive with civil servants, not just about whether state aid issues apply, but if they do, about how quickly they can be removed. Some of the issues I am thinking of have been washing around for most of the four years that I have been in this place.

Europe has the emissions trading scheme, which has not totally met its objectives, as the allowances originally given to companies were fairly generous but the tight market that was expected to lead to carbon trading has not occurred. Ironically, however, Sahaviriya Steel Industries in my constituency has a specific problem because it was virtually out of business during the reference period when the allowances were decided. It now pays $1 million a month in carbon cost to the EU, because it does not have enough allowances to operate. It is also expanding, so carbon costs are yet another handicap.

Businesses can do many things to reduce energy use, but as the hon. Member for Newcastle upon Tyne Central said, there are physical and chemical limits. I do not disagree with some of the EU moves on best available technology, or with new moves to look at what is technically feasible and ensure that companies in the EU move towards that best available technology. I hope that we do not get regulatory regimes that drive everybody else out of business if they are not the best, as that will not help anybody. However—I hope the Government will take notice of this—when the best available technology frameworks are established for different businesses, that will at least show what is possible with regard to reducing energy consumption and contribution to climate change. If a company is doing something in another country, we can do it here; if it is not being done anywhere, we must ask whether it is sensible to try to drive a company to use 50% less energy, for example. I would like to see constructive work with the EU on that, ensuring that we are as bold as we should be when dealing with its requirements.

Investment has been mentioned, and the manufacturing industry has been declining. During the previous Government, it went from being 19% of the economy to

10%, although some growth is occurring. I worry about these businesses because there is capital investment inertia. It is not about whether company A is operating today, tomorrow or next year; it is about what investment decisions are being taken. Are the plants being kept up to date and maintained? Above all, would the company concerned re-invest in such a business?

I remember my experience as a financial director in the chemical industry. We decided to get out of a business, but 24 years later that business is still running. It has never been renewed, but it has been patched up and sold three times since then. Those are the types of decisions taken. If we have an unattractive climate for investment in this country, things will close down not overnight but steadily, and we are seeing some of that.

The Engineering Employers Federation, which covers all the businesses we are talking about, says that energy costs are its No. 1 issue for growth and investment. Many of these companies are foreign owned. The biggest employers in my constituency are Singaporean, Thai, Indian, Saudi Arabian and Korean. Decisions are being taken not in the north of England or London, but in Seoul, Riyadh, Bangkok and so on. If our energy infrastructure costs do not look competitive and sensible, companies do not need to come here or re-invest.

Despite sounding somewhat critical, I welcome the Government initiatives. The mitigation moves that they have mentioned are helpful for big energy users in my constituency. I hope the initiatives will take place with due speed—that has been an issue—that there will be certainty and that they are not a one-off. We are talking about long-term businesses taking long-term decisions. If the Government believe that throwing a carrot towards a business for 12 months makes a difference—well, obviously it makes a difference to its cash flow in those months, but it will make no difference to its strategy. Uncertainty does make a difference in the wrong direction.

I welcome the fact that the UK Green Investment Bank is majoring in investing in industrial energy reduction, as well as renewable technology, and I welcome the renewable heat incentive, which should help. The regional growth fund has put money into such businesses—most recently, £9 million went into a huge project at Sabic in my constituency, which will result in the petrochemical cracker being able to crack gas. I am pleased about the Tees valley city deal, which I helped to push for and even construct. It will get carbon capture and storage around Teesside, which I still regard as the No. 1 location for investment in carbon capture and storage for industries outside the energy sector, although we have the energy sector as well.

Photo of Alex Cunningham Alex Cunningham Labour, Stockton North

I am grateful to my new hon. Friend for giving way, and I believe that that is the central issue on Teesside. Will he join me in congratulating the industrialists on Teesside who, despite being competitors, have come together because they know that the future is about investment in carbon technology?

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar

I agree with the hon. Gentleman. Such a technology will create an infrastructure that will benefit all those sectors, and they do not compete that much with one another. The Tees valley can be a hotbed of competitive steelmakers, chemical producers and so on. Strategically, the country should get on with that.

All hon. Members have mentioned the importance of energy-intensive industries. They are important to the economy, to the development of green industries—let us think of the amount of steel involved in tidal power—and to the security of the country. We should not kid ourselves when we count carbon. In a debate a while ago, the hon. Member for Warrington South asked, “Is the carbon for my Volkswagen car mine or the Germans’?” We are kidding ourselves if we think we are doing the right thing by de-industrialising this country, exporting jobs and importing carbon. That is one point on which I depart from the hon. Member for Newcastle upon Tyne Central.

Photo of David Mowat David Mowat Conservative, Warrington South

I agree with the sentiment the hon. Gentleman expresses, but I do not recall saying that. I have a Volvo, not a Volkswagen, so I might have talked about Swedish carbon.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar

I think he mentioned Volkswagen in the context of chiding the Germans for their carbon emissions. I made the point that a big manufacturing exporter such as Germany is probably bound to have higher carbon emissions on a production basis.

It looks as if I will be fighting the hon. Member for Newcastle upon Tyne Central for the first copy of Hansard tomorrow, because I, too, must leave the Chamber, to join the Government’s rail electrification taskforce. I apologise in advance to the Minister. I will look closely at her remarks tomorrow.

Photo of Angela Smith Angela Smith Shadow Minister (Environment, Food and Rural Affairs) 12:31 pm, 11th September 2014

It is a pleasure to follow Ian Swales. I pay tribute to my hon. Friend Alex Cunningham and congratulate him on securing this important debate. I echo his comments on the relative emptiness of the Chamber. To emphasise the point, the relative emptiness is not because Parliament does not recognise the importance of carbon taxes and energy-intensive industries, but because all hon. Members are aware of the huge constitutional issues we face. Many of our colleagues are in Scotland trying to save the Union, and I pay tribute to them for doing so.

The debate has included one contribution from an east midlands Member and three contributions from north-east Members. I shall try to balance that by giving the perspective of the manufacturing sector in Yorkshire and the Humber, which is one of the most important manufacturing bases in the country, alongside the north-east, the north-west and, importantly, Scotland. A conservative estimate is that at least 800,000 people work in energy-intensive industries in the UK. I will call them “foundation industries”—I do not like the term, “energy-intensive industries” and “foundation industries” is a much better description. Foundation industries are critical to the whole of our manufacturing base. Included in those 800,000 are the supply chains built around the key industries.

We are entering an era of shortening our supply chains—the production and supply of components for other industries are being re-shored in the UK, which is welcome. If we look at the supply chains of BAE Systems, one of our most important manufacturing companies, it is immediately obvious how well balanced the company and its supply chain are in the country.

Its impact is felt not only in the north-west in Barrow-in-Furness and Warton, but throughout the country, particularly in Scotland, Yorkshire and the Humber and the broader north-west.

That illustrates an important point about Scotland. Manufacturing in Scotland is important not only to the Scottish economy but to the whole UK economy. The shortening of the supply chains and the building of stronger supply chains in our country is making the integration of our manufacturing base more important than it has ever been in our industrial history. From that point of view, UK manufacturing is stronger together, just as the UK is better together with Scotland. That point in the debate is often overlooked. All the talk is of the pound and everything else, but it is important not to forget that if we are to rebalance the UK economy, manufacturing is the best point at which to start because it is already well balanced. Manufacturing in Scotland is an integral part of that.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar

The hon. Lady is right. One of the most important foundation chemicals is ethylene. There is a pipeline between the north-west of England to Teesside and then Scotland. That pipeline helped in the recent Grangemouth dispute.

Photo of Angela Smith Angela Smith Shadow Minister (Environment, Food and Rural Affairs)

My hon. Friend the Member for Stockton North made the point about shale gas, which gives us the potential to supply a good, domestic feedstock for the chemical industry. It would be more efficient and better for us all round for that feedstock to be delivered throughout the UK, rather than having borders between Scotland and England. That is an obvious point, but it is important to put it on the record.

The definition of “foundation industry” varies, but broadly, we mean steel, cement and lime manufacturing, chemicals, ceramics, glass and paper. The contribution those industries make to key economic activities such as transport and construction is fairly obvious, but their importance in other ways is often overlooked. For instance, the chemicals industry has contributed to the growth of food manufacturing in this country, and chemicals will continue to be important for agricultural use and in ensuring that we maintain a healthy food production capacity in this country. We thus realise how apt the term “foundation industry” is, as they are key industrial sectors.

At a conservative estimate, those industries make a contribution of roughly £15 billion to UK GDP per annum. Depending on the definition of “foundation industries”, their combined turnover varies between £70 billion and £95 billion per annum. They provide 11% of the UK’s gross value added. Their contribution to UK export capacity is very significant: they contribute at least 30% of our export capacity, but I have read somewhere that it could be as high as 54%. Again, that depends on the definition of “foundation industry”.

The foundation industries have a strong research and development profile, which is often underestimated and overlooked in terms of their importance to the UK. The future of the sectors is dependent on high-quality research and development profiles, on significant investment, and on ensuring that we stay ahead of the game in manufacturing capacity and at the high-value-added end of the manufacturing spectrum.

I pay tribute to the first of the catapult centres developed in the UK—in south Yorkshire, at the advanced manufacturing park at Catcliffe—more than 10 years ago by Yorkshire Forward and others in Sheffield and Rotherham. The park is focused on engineering, particularly steel engineering, and is going from strength to strength. A partnership in Sheffield between Boeing, Rolls-Royce, the university of Sheffield and Sheffield Hallam university is building a brand new factory, Factory 2050, alongside the original buildings, and is now investing heavily in research into nuclear capacity. It is a highly successful venture that provided the blueprint for the Government’s catapult centre strategy.

As a Sheffield and Barnsley MP, I am incredibly proud of the innovative work done in south Yorkshire in using the concept of catapult centres to promote the collaboration between academic institutions and our manufacturing centre to make us world class in innovation and the development of new technologies. Our foundation industries are also at the forefront of work force investment. They have a good record on paying their work force well—these are good jobs—and investing heavily in apprenticeships and ongoing professional development training. The country needs more of that. In many cases, our foundation industries provide a good example of best practice.

My constituency has many foundation industries within its borders. Fox Wire produces world-class cabling for the oil industry and many other applications. Tata Speciality Steels provides steel for the aerospace industry and is at the top end of steel manufacturing in this country. In fact, one reason it is headquartered in my area is that it cannot find elsewhere the skill sets it needs to maintain its position as the best in steel manufacturing. We are very proud of that. In addition to those industries, British Glass is headquartered in my constituency, and I also have cement, paper and ceramic interests, so I represent a range of manufacturing interests.

One of the ceramics companies in my constituency, Naylor, is a family company, not foreign-owned, and has been in existence for more than 100 years. Only this week, it secured six-figure funding towards a £2.5 million project to increase capacity, while reducing energy consumption, at its Cawthorne factory in my constituency, through a combination of smart metering and an in-house plastics reprocessing plant to make use of its own waste on site. There are limits to what can be done to reduce energy consumption, but these are practical, innovative ways of continuing to reduce energy use. In addition to energy efficient lighting, a new energy efficient kiln and dryer has created extra capacity, while reducing energy costs, and led to 30 new jobs. I am proud of Naylor. This superb company is increasing its exports profile and winning awards all over the place, while being dedicated to reducing its carbon footprint—because it makes financial sense. I think the hon. Member for Redcar made this point. The industry is already incentivised to reduce its carbon footprint because it will make business more efficient and cost-effective.

Briefly, Sheffield city region provided some of the funding for that project, which is a tribute to an important element in the ongoing constitutional debate—local decision making. We need some devolutionary thinking on getting investment in manufacturing in the rest of England, never mind the other constituent parts of the UK.

Industry is committed to reducing energy use. For example, Celsa, a recycled steel plant in Cardiff, is one of the most energy and labour efficient plants in Europe, and we have seen significant reductions in electricity consumption by the steel industry in the past 30 years. The figures are startling. I do not have them to hand, but the electricity consumption of steel making in my city has gone down significantly in the past 30 years. On that point, will the Minister respond to the request by steel makers across the UK that the Government reconsider the advanced capital allowances for energy efficiency? The scheme is based on generic lists of technologies and excludes the more specific but often large energy efficiency opportunities that our foundation industries want to engage with. I would be interested to hear whether the Treasury is prepared to reconsider that scheme and take the common-sense approach of applying it to these large-scale energy efficiency projects.

The role of foundation industries in developing a green economy should not be overlooked, as I said in an earlier intervention. I was not saying that we should move faster than the rest of Europe; in some ways, I was making the reverse point. We must be careful not to damage the competitiveness of the foundation industries in this country, precisely because they are critical to delivering the green economy we need, not just in the UK but across European and globally. We know that the foundation industries have an important role to play in developing renewable energies, such as carbon capture and storage, and we know that they play a valuable role in the production of energy-efficient construction materials, particularly in respect of chemicals. The chemicals sector is doing a good job of developing wonderful new materials for use in construction projects, not just for commercial but for domestic building, as I saw when I visited a research project at Nottingham university involving several chemical companies, including BASF. That project is doing impressive work to cut the carbon footprint of domestic building projects and to cut energy costs across the board, especially for home owners.

British Glass is developing new trading standards and is keen to see glass play its part in developing a green economy, and new glass technologies are being developed all the time. Let us not forget either that wind turbines require a lot of steel in order to help reduce our carbon footprint and produce green energy. The steel industry also points out that the development of the lightweight vehicles we increasingly see on our roads is largely down to work by the steel industry to reduce the weight of construction materials. The foundation sectors are doing a great deal of work to develop the green economy, but the costs being incurred by our industries as a result of our carbon-intensive industrial past must not be forgotten.

We are now paying the clean-up costs of an industrial legacy that has left many of our environments badly degraded. As an example, the water industry in Yorkshire has to pay out millions of pounds a year to clean up the water collected from a catchment that is badly degraded—by peat degradation. The water must go through multiple processes to remove the peat before it can be put into our catchment and our networks. A great deal of work is involved, and we have to recognise that the industry is paying the costs of carbon pollution in the past. That should not be overlooked when we reflect on the arguments in favour of transitioning to a green economy. It is very short-sighted to argue that the green economy is not important to our future; it quite clearly is.

Let me move on directly to the impact of carbon taxes and levies on our foundation industries. My hon. Friend the Member for Stockton North made the point, which should be reiterated, that Tata Steel, for instance, has estimated that year-ahead wholesale electricity prices are 70% and 45% higher than in Germany and France respectively. That is driven in large part by policy-driven taxes and levies for the most intensive users; those were 2.5 and 6.5 times higher than in Germany and France respectively in 2011.

The British Ceramic Confederation has pointed out that DECC’s own analysis shows that climate-related charges are already 19% of the industry’s base load price, which will rise to 47% in 2020. The manufacturers’ association EEF has stated that the Government’s own estimates indicate that industrial electricity prices will increase by 50% by 2020 and 70% by 2030. Moreover, Tata Steel is clear that the levies with the greatest impact today are the renewables obligation and the carbon price floor. The company also points out that many of its steel competitors in Europe will either be completely exempt from many of the levies or have their charges capped.

As far as I am concerned, the Government’s recognition of the damage inflicted on our manufacturing sector by the carbon price floor is most welcome, but why on earth they introduced the floor price in the first place remains a mystery. As I say, we welcome their acknowledgment in this year’s Budget of the mistake made. The proposals laid on the table represent something of a step forward in resolving the issues, but they do not resolve all the issues related to the imposition of the carbon price floor in particular on our sectors.

The 2014 Budget announced that the carbon price floor would be frozen at £18.08 from 2016-17 to 2019-20, saving all UK business an estimated £4 billion over three years. The Government will review the carbon price floor beyond 2020, once the impact of the reform of the EU emissions trading scheme is clear. They are extending existing compensation for CPF and ETS for 2019-20 and we of course have the compensation package in place.

It is my understanding, however, that the compensation package is underspending, so the Minister, who until a moment ago was busy on her mobile phone, might like to concentrate on providing an explanation of why the Government are underspending on their compensation package to industries that desperately need to see it delivered. She needs to explain, too, why it continues to be the case that the UK does not appear to be punching at its weight when it comes to making the case to Europe that more of our foundation industry sectors should be included in state aid guidelines. [Interruption.] I am sorry, but the Minister should realise that this is not a laughing matter.

We need to know why the Government are not working harder to make the case to Europe that more of the sectors affected by the carbon floor price should be included in European state aid schemes. That is at the heart of this debate. Sectors such as ceramics make intensive use of electricity—use of the electric arc furnace is not confined to the steel industry; it is used in ceramics, too—yet the ceramics sector has been almost entirely excluded from the compensation on the table at the moment. The Government should explain that, or at least make a commitment to ensure that that unfairness in the compensation schemes on the table is removed as soon as possible.

We need to see a commitment to introduce the announced mitigation measures for the renewables obligation as soon as state aid approval has been granted by Brussels. As I said, we also need to see a commitment to ensuring that the sectors included in state aid are extended as soon as possible. We need an approach that gives specific consideration to premier league energy-efficiency projects, or incentive schemes such as the enhanced capital allowances that I mentioned. We need to see UK support at the October European Council meeting for including the principle of the continuance of robustly protecting the competitiveness of the sectors most at risk at the level of best performance. We need to see, too, a commitment from the Government to support the industrial strategies developed by the foundation industries, such as the chemistry growth partnership and the developing UK metals strategy.

Finally, I want to hear the Minister’s response to the argument that a consolidation of the taxes and levies on the table at the moment would be a sensible way forward. A significant number of taxes and levies are being placed as a burden on our foundation industries. Indeed, one company in my constituency has to employ a highly skilled individual full time just to deal with compliance with the range of levies and taxes that need to be delivered year on year. The Government need to think again about the impact on industry of having to work through so many different schemes and so many different levies year on year. Nobody is arguing against the principle of carbon taxation—

Photo of Angela Smith Angela Smith Shadow Minister (Environment, Food and Rural Affairs)

That might not quite be comprehensive, but most Members in the Chamber today agree with the principle of carbon taxation. What we want is sensible carbon taxation, delivered efficiently but at the same time ensuring that we have a level playing field with the rest of the European Union. That is not the case at the moment. I hope that the Minister has listened carefully to what has been said, and that she will come up with some constructive responses in her speech.

Photo of David Davies David Davies Chair, Welsh Affairs Committee 12:58 pm, 11th September 2014

Angela Smith has just said that nobody will argue against the principle of carbon taxation. First of all, I am going to argue absolutely against the principle of carbon taxation, and I shall briefly set out why. It is interesting to note that while not many people will argue against that principle, everyone in the Chamber has been arguing about the practical consequences of carbon taxation.

It was wonderful to listen to the speech made by Alex Cunningham. If I had shut my eyes, I might have believed that I was at a meeting of the Global Warming Policy Foundation, as he delivered a damning critique of the effect of the taxes that have been levied. He set them out far better than I could, but the point is that levying unilateral taxes on our manufacturing industries is absolutely crazy. It simply means that business goes elsewhere, to other countries, and the same amount of carbon dioxide gets pumped out into the atmosphere, so there is no particular benefit, if indeed there would be any benefit from reducing carbon dioxide; that companies are far less willing to come into the UK, because they do not know what our energy policy is; and as the hon. Member for Penistone and Stocksbridge has just pointed out, that many companies are having to employ people in order just to comply with all the taxes that are being introduced.

I look forward to hearing the speech of my hon. Friend—indeed, my friend in all senses of the word—Priti Patel. She certainly cannot take the blame for any of this, because she has only recently become the Minister. I am sure that she will take a very sensible view, and I am confident of her desire to support the UK manufacturing industry. However, I have no doubt that she will point out to us, as others have already, that the Chancellor has taken steps to cap the carbon price floor at £18, and that the compensation scheme will be extended.

We have all got our knickers in a twist. Having levied all sorts of taxes on our manufacturing industries, we are now going around saying “Hang on a minute, these taxes will damage these industries, so we will provide some compensation, but not for all of them, just for some.” So steel gets a bit of compensation, and cement and pottery do not. It is all done in a random fashion.

Surely there is a basic, fundamental question that we should be asking. If we all agree that these taxes are bad—and I think we do all agree that they are bad, or we would not be providing compensation in some instances—why bother with them in the first place? It does not make any rational sense to levy a load of taxes on carbon-producing industries and then give some of those industries some of the money back, but not quite enough. That, to my mind, is completely and utterly irrational.

The elephant in the room, however, is global warming. No one wanted to talk about that, but the whole rationale for these taxes is that we are going to stop runaway global warming. Why does no one mention it, given that it is the root cause of all these carbon taxes? We need to start thinking about the rationale for them, because there has been no increase in temperature since 1998. No one disputes the fact that carbon dioxide is a global warming gas—it is a scientific fact—and no one disputes the fact that there has been an increase in temperatures over the last 200 years, although the increase is less than 1° C; in fact, it is about 0.8° C. It is reasonable to assume that some of that increase is a result of the carbon dioxide that has gone into the atmosphere. However. it is equally reasonable to assume that not all of it is, and even that not much of it is.

At the time when we were becoming industrialised, we were coming out of a very cool period, the “little ice age”. We have always experienced fluctuations in temperatures. It was warmer in Roman times, it got cooler in the dark ages, it got warmer again during the mediaeval period, and then it got cooler again during the little ice age. Some of the very small increase in temperatures that we have seen is no doubt due to perfectly natural fluctuations, and that is borne out by the fact that there has not been a straightforward increase in carbon dioxide and temperatures. Between 1940 and 1970 it was getting colder, despite the increase in carbon dioxide going into the atmosphere, and since 1997 there has been no increase in temperatures. I asked the Met Office and environmentalists, who thoroughly support these green taxes, “How long must we have no increase in temperatures before you start to think again about the taxes that you want us, the Government, to levy?” The answer from the Met Office was “Another 50 years”, but it will be too late for all these industries in 50 years’ time.

Photo of Angela Smith Angela Smith Shadow Minister (Environment, Food and Rural Affairs)

The hon. Gentleman clearly did not listen to my illustration of how careful we must be about swallowing that kind of argument. The water industry in my constituency is paying the cost of having to clean up pollution in the local water supply, which is a result of almost 200 years of unregulated industrial activity that badly polluted the catchment area from which we take our water. Does that not indicate to us that we must be careful about how we look at the future of industrial and energy activity in the UK?

Photo of David Davies David Davies Chair, Welsh Affairs Committee

It indicates to me that we have got our priorities wrong. We certainly should be looking at water, and we should be looking at chemicals, but the hon. Lady is making the mistake of thinking that carbon dioxide is some sort of poison which should be equated with whatever chemicals were put into the water supply. Carbon dioxide is a perfectly natural gas, and it is vital to growth. Without carbon dioxide, we would not be able to grow anything at all, and it is far from certain that carbon dioxide is responsible for the 0.8° rise in temperature. We can only say that it is responsible for a small amount.

Let us be honest. We have a sort of pseudo-religion of global warming—no one can even begin to question it—and the Intergovernmental Panel on Climate Change publishes the bible of that pseudo-religion in the form of the report that it produces every couple of years. In its latest report, the IPCC itself says that it can only state with certainty that half the temperature increase in the second half of the 20th century is due to man-made carbon emissions. Well, in the second half of the 20th century the actual increase in temperature was 0.5°, so what the IPCC is saying is that it can only state with certainty that man is responsible for a 0.25° increase, which is about a quarter of the figure that we are constantly given. So what is the problem that we are trying to address with all these taxes on our industries?

I have the greatest respect for the Minister, and, as I have said, I am absolutely confident in her ability and her desire to support manufacturing industries. I suspect that she may share some of my concern, shall we say, although I will not embarrass her by putting her on the spot with comments like that. But I hope that she is taking note of something here. The reality is that Members in all parts of the House want to distance themselves from the consequences of policies that they themselves have called for.

A few years ago, no one was more enthusiastic about green policies than Opposition Members. What about that Liberal Democrat Member? I have forgotten his

constituency now, but he is not in the Chamber. He was the most enthusiastic of all, constantly championing green policies, yet it was he who drew our attention to the fact that manufacturing companies in this country were paying twice as much as the Germans for their energy. Perhaps he is another one who should be invited to the Global Warming Policy Foundation some time. I think that if Caroline Lucas had a steel factory in her constituency, even she would probably be whingeing and whining about the taxes that she herself had enthusiastically called for. None of these people will support the Front Bench when it comes down to it. They call for green taxes, but they do not want the consequences. The level of hypocrisy that comes out of the green movement is absolutely astounding.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I fear that the hon. Gentleman has misunderstood the subject of the debate, which is, specifically, carbon taxes on energy-intensive industries. Those taxes have not been supported by Greenpeace, and are not considered to be green taxes at all.

Photo of David Davies David Davies Chair, Welsh Affairs Committee

Greenpeace does not support anything as far as industry is concerned. None of the environmental groups do. They call for us to decarbonise completely, but whenever we offer them some handy solutions—such as nuclear power, which generates large amounts of electricity without carbon dioxide—they do not want to know. And what about shale gas? I was interested to hear the hon. Member for Penistone and Stocksbridge call for us to export it, as well as mentioning a company in her constituency that supports nuclear. Exporting shale gas is a good idea. It produces half the amount of carbon dioxide that is produced by coal, and it is vital for the wind industry that we have gas to back it up. However, the greens do not want to know about that. What about the Severn barrage, which was proposed in my constituency? I would have some concerns about the cost, but I believe that it would generate 20% of the UK’s electricity supply without any carbon dioxide. The greens are more worried about the fact that some wader birds would be inconvenienced. They have wings—they could fly somewhere else—but the greens do not want to know about it.

My point to Catherine McKinnell is this. She will never, ever satisfy the green movement. Let us forget about pandering to the green movement. Let us forget about pandering to all those who call for carbon taxes and who are a little more sensible, such as Opposition Members, because they will not support the consequences either. Let us remember that, at this moment in time, it is not the meteorological climate that we need to worry about, because that has not changed for about 18 years. It is the economic climate that we should be concerned about.

I hope, and I am sure, that the hon. Lady will champion Britain as a great place in which to do business, and a great place to which to come and make things, and will do something about these ridiculous green taxes, which do not just need to be scaled back—I will not use quite the words that were used by the Prime Minister, although I welcomed them greatly—but need to be completely scrapped.

Photo of David Mowat David Mowat Conservative, Warrington South 1:09 pm, 11th September 2014

It is a pleasure to follow my hon. Friend David T. C. Davies. I seem to recall that I had the opportunity to follow him in the energy debate two weeks ago, so perhaps we are getting to be a bit of a double act. My premise is that we do need to decarbonise, but he makes a valid point about the hiatus: it is true that the climate has not changed, certainly in the last 15 years. There are statistical reasons why that might be possible and the balance of science is still that there is probably an issue. I am not a scientist—nor is any other Member present to the level of being able to interpret these data—but my position is that, at least on the precautionary principle, it is right that we decarbonise.

My remarks in respect of this industry, in which, as we have said, there are 800,000 jobs, will focus on the increasing dichotomy of approach between us and other countries—between us and the EU, the United States and the rest of the world. These taxes are designed to prevent a free market in electricity and energy. A free market in both, particularly at the moment, would involve massive amounts of coal and depreciated nuclear, I guess, and we have decided for policy reasons that we do not wish to do that. We are, however, out of step.

The shadow Minister, Catherine McKinnell, said that the debate was about the carbon price floor. It is not just about that. It is about carbon taxes in general. I do not support what happened on the carbon price floor. I think it was an error, and I am glad the Chancellor took the opportunity to fix it. It is a little bit hard to take the Labour party lecturing us on that. We talked previously about what happens whenever we debate an energy measure— through which we can tangibly affect energy prices—in this Chamber. There is always a judgment to be made between speed of decarbonisation, how we act unilaterally, costs and jobs. Whenever we have to make that judgment, however, the Labour party has always, during my time in Parliament, belligerently taken the view that the Government are not being green enough and we need to go further. I remember the debate of three years ago on the reduction of solar PV from six times grid parity to four times grid parity. That was a perfectly reasonable proposal, but the Labour party resisted that and fought it in a striking way.

The key date, however, in terms of the Labour party’s position was 4 December last year when, although we are switching off our coal stations anyway and are going further and faster than others in Europe in doing so, there was a Lords amendment to require existing coal stations to be switched off more quickly than had been planned in terms of the emissions performance standard. Labour Members voted for that, so for them to lecture us on this stuff is a little bit rich. Finally, let me point out that in 2010, at the end of the last Parliament, this country ranked 27th out of the 29 countries in the EU in amount of renewables. I have no problem with renewables; it is the cost of them that is an issue.

We are now out of sync with the EU. In a good speech, Angela Smith told us about Germany and France having forward energy prices that are 40% and 70% lower than ours. That is not a sustainable position from which countries can agree to invest in industry. The odd thing about EU energy policy is that it has not emphasised reductions in carbon. What EU energy policy has done is emphasise renewables, which is not quite the same thing. The consequence of an energy policy that is about not reducing carbon but having more renewables is that we get behaviour such as that in Germany. Some 40% of its electricity comes from renewables, which is a huge and difficult thing to achieve, yet it now burns so much coal that its carbon usage per capita and per unit of GDP is a third higher than ours. The consequence of EU policy is that we have not decarbonised and we have misallocated revenue that should, perhaps, have gone to carbon capture and storage, which is not a renewables technology. We have not decarbonised. Instead, we have misallocated capital to renewables. I am not against renewables, but I am for—this is the policy—decarbonisation. Ian Swales, who is not in his place, talked about state aid and the fact that the Germans in particular, but also the Belgians and the Dutch, cross-subsidise industrial jobs in order to keep these foundation industries going.

A great deal of marginal foundation industry is reshoring to the eastern seaboard of the United States. There, chemical feedstocks, and electricity, are one third of their price in Asia and here. That is a massive differential. People talk about shale and ask, “Is shale going to happen?” Shale has happened. It is transforming, and transforming quickly, the economy of the United States, while we continue doing feasibility studies while marginal jobs move. It is true that it is not as if whole industries are moving. What is happening might involve, for instance, an investment decision about a bit of marginal kit possibly in Teesside or the north-west—a new cracker, a new process. That marginal decision is looked at in its own right. Increasingly, the decision is made to put it in EU countries, with their cheaper electricity, or on the eastern seaboard of the United States.

We are out of sync, too, with the rest of the world. Every Member who has an interest in this policy area should know this key statistic: this year is a big year for carbon emissions per head, because it is the year in which—per head, not as a country—China will pass the UK in carbon emissions, for which the UK is one of the lower countries in the EU. That is a big number, and it shows the need not only for international action, but for us to stop acting unilaterally unless we can bring other countries with us.

On that point, although the world increased its renewables—our renewables—by a reasonable chunk, the increase in coal was three times greater than the increase in renewables in absolute terms. We must take account of such issues when setting our own carbon taxes and our own policies, reflecting on the 800,000 jobs that exist in the industry, and which we all would agree we want to continue to exist.

The Climate Change Act 2008, passed by the last Government, contains a requirement for us to reduce carbon emissions by 80% by 2050. The issue, however, is that the world has not followed us. Some people might say, “Ah, isn’t it good that we are out in the lead on all this stuff? Isn’t it good that we are demonstrating soft power? Isn’t it good that we are setting an example for the rest of the world?” That might be true—I do not have an argument with that—but the world has not followed us. Nobody else has passed anything like a Climate Change Act, and nobody else, as far as I can see, looks as if they are going to. The consequence is that, rightly, we have the Committee on Climate Change, which produces carbon budgets, and carbon budgets produce behaviour and all that goes with that.

Let me leave the House with this point. I had what I thought was a very scary conversation, in which I mentioned our penalising our energy-intensive industry, with somebody who works for the Committee on Climate Change. He said to me, “Ah, it’s all about comparative advantage.” Comparative advantage means this: if Britain wants to be an industrialised economy into the future, we need to be thinking about which industries we are in, and we need to be choosing—this was the position of this person from the Committee on Climate Change—and prioritising other industries over these foundation industries because they are not the future. I do not agree; I disagree profoundly. Those 800,000 jobs are very important and the number can grow, but that is the atmosphere in which part of this debate is being conducted and for me at least it is quite scary.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury) 1:19 pm, 11th September 2014

I congratulate my hon. Friend Alex Cunningham, Ian Swales, who is no longer in his place, and the Backbench Business Committee on securing this important and pressing debate on the impact of carbon taxes on energy-intensive industries. I speak in my capacity not only as a shadow Treasury Minister but as a fellow north-east MP. The north-east is one of the most energy-intensive areas of the country, and a base for the many companies that have been mentioned today: Wilton International, INEOS and Tata Steel are just a few of the largest. I am therefore aware of the importance of this issue for the future of our productive industries, for jobs and for economic growth in the region and across the UK.

The Government’s own figures suggest that, at national level, the chemicals, paper, ceramics and metals industries directly contribute about 2% to UK gross value added. They have a combined turnover of £130 billion and directly employ about 330,000 people. The TUC estimates that, if we include those working in the wider supply chain, there are about 800,000 people working in the energy-intensive industries—or foundation industries, as my hon. Friend the Member for Stockton North prefers to call them—and the supply chain.

I recently visited Ibstock, which has a brickworks in Throckley in my constituency. It is the largest brick producer in the UK, with 19 sites across the country, employing around 1,500 people. The North East Process Industry Cluster estimates that 1,400 such companies across the region export £12 billion worth of product each year. So, if we are to achieve a balanced recovery and build a highly productive, more export-led economy, we have to recognise that manufacturing, ceramics, glass, chemicals and steel—all energy-intensive industries—are an important part of that picture. There is agreement across the House on the importance of supporting those industries and ensuring that they create the jobs and economic growth that we all want to see.

The motion before us today refers to the imposition of carbon taxes and levies, and rightly welcomes the relief announced in this year’s Budget to limit future rises in the carbon price floor. However, the bottom line is that this support—capping the future costs of carbon and providing an exemption for combined heat and power plants—has come too late. It is more than 12 months since the measure was meant to begin compensating energy intensives, but that was certainly too late for one company on Teesside, which told me that it had had to close one of its coal boilers in 2014, resulting in 100 job losses. There have been other cases in which manufacturers, steelworks and brickworks have fallen victim to the ill-thought-out carbon price floor, as my hon. Friend the Member for Stockton North has shown.

I understand that David Mowat thoroughly resents what he describes as crowing from the Labour Benches on these issues, but many of the problems that these companies are facing in relation to the changes in the taxation system have arisen under this Government, and we warned of the consequences throughout this period. The carbon price support rates of the climate change levy, which underpin the carbon price floor, were entirely the creation of this Conservative-Liberal Democrat coalition Government. They were introduced in the Finance Act 2011, despite the deeply held and loudly voiced concerns of Opposition Members who tried to amend the legislation on a number of occasions before its implementation.

My hon. Friend Kerry McCarthy, then shadow Economic Secretary to the Treasury, tabled an amendment calling on the Government to at least consider the impact of this carbon tax on a whole range of affected parties, from energy bills and fuel poverty to renewables and the energy sector more widely. More importantly, the Opposition also asked the Government, in carrying out that review, to take stock of the impact of the carbon price floor on energy-using manufacturing industries and on employment in those industries. My hon. Friend said at the time that there was a danger, particularly in the absence of a credible Government plan for growth, that growth and jobs would be exported to other countries, that UK industry would be at a disadvantage, and that jobs and growth would be put at risk. Those concerns, and our amendment, were dismissed at the time, but unfortunately many of those concerns have been realised. The Government’s U-turn in this year’s Budget has recognised that fact, but for some it has come too late.

In March this year, for example, Thai-based steelmaker SSI, located in the constituency of Ian Swales, revealed that it had yet to turn a profit despite producing 5 million tonnes of steel. It has regularly raised concerns about the risk to jobs. Indeed, SSI raised concerns about the carbon price floor, along with the rest of us, back in 2012. In March 2012, we lost Rio Tinto Alcan’s aluminium smelter plant in Lynemouth on the Northumberland coast with the loss of more than 500 jobs. It had been a source of employment in the area for more than 40 years. Rio Tinto Alcan had estimated that its energy costs would jump from £7 million to £100 million as a direct result of carbon taxes—including, of course, the carbon price floor.

I want to turn to the question of compensation. In 2011, the Chancellor promised a £250 million compensation package for the worst-affected heavy energy-intensive industries for the “indirect costs” of the EU emissions trading system and the carbon price floor. Three years later, however, Ministers’ statements and answers to parliamentary questions suggest that only 53 energy-intensive companies have been compensated for the costs of the EU ETS, and that—as far as I am aware; I would be grateful if the Minister could update us on this—absolutely none has been compensated for the costs of the carbon price floor, even though state aid clearance was finally received for that in May.

Energy-intensive industries, having being promised by the Chancellor in 2011 that, thanks to Government support, they would not be priced out of the world economy, have now been waiting for around 18 months for help on the coalition’s carbon tax, but that help remains out of sight. It seems that, due to the delays, the Government have only paid about £31 million of the £250 million compensation that they promised in the 2013 autumn statement. Will the Minister clarify whether the Government intend to pay out the full £250 million by the end of this Parliament, as was originally promised? The Chancellor talked about the world economy, but what about the European economy? The Government’s own figures suggest that our heavy industry has been priced out there, too, as the motion before us today notes.

A recently published consultation paper included estimates from the Department for Business, Innovation and Skills and the Department of Energy and Climate Change of electricity prices faced by energy-intensive companies in the absence of Government intervention, compared with other countries around the world. Given that there is effectively an absence of Government intervention at the moment—aside from EU ETS compensation to just 53 of the thousands of companies affected—the Government’s figures drive home the stark reality of the impact on our productive industries. UK energy-intensive industries face the highest costs of any country in the world. The figures predict that in 2015 our energy-intensives’ electricity costs will be almost double those of their counterparts in Germany—a country already known for its high energy prices—let alone of those further afield in Japan, the US or China, whose electricity prices are dwarfed by ours.

I put to the Minister today the same question that I have put to her predecessor and to other Ministers: when will energy-intensive companies finally start receiving compensation for the costs of the carbon price floor, which the Chancellor promised three years ago? More importantly, will she clarify whether the Government have given up on backdating compensation for the last 18 months in which energy-intensive companies have had to pay for the carbon price floor without any of the help that the Chancellor had promised? The former Energy Minister, Michael Fallon, originally suggested back in February that the Government would continue to press the case for backdating. Yet, in a delegated legislation Committee in July, he appeared to backtrack on that, saying that it was a “lost cause”. Perhaps today’s Minister will clarify the point: have the Government given up on backdating as a lost cause?

I wish to press the Minister on one further point. Welcome though the state aid clearance in May was, it also turned out to be a further blow for the hopes of many other energy-intensive industries, particularly the glass, ceramics and minerals sectors, which the EU Commission deemed to be

“less exposed to higher energy prices” and which were therefore excluded from the list of eligible industries. The then Minister of State—he is now Defence Secretary—said in July that he “remained concerned” about this decision and that the Government would seek a review of eligible sectors with the Commission “later this year”. The Financial Times recently reported that the UK Government were “considering options” in that respect and pushing ahead with an application to compensate these newly excluded sectors, although it commented that the chances of success “look slim”. Given that previous Minsters have promised to press the case, only later to seem resigned to lost causes, what reassurances can this Minister give hon. Members and these companies, which we know are interested and following this debate, that the Government are doing everything they can to secure this much-needed support for industries struggling to remain internationally competitive?

Earlier this year the Opposition commissioned Mike Wright, executive director of Jaguar Land Rover, to conduct an independent review of advanced manufacturing in the UK. His report clearly set out the challenges we face, including, most importantly for this discussion, on how we have a proper long-term industrial strategy that promotes investment and helps us realise our full productive, innovative potential. Inherent in that is striking the right balance between becoming world leaders in tackling climate change, and in the technical solutions that come with it, and not putting our businesses at a competitive disadvantage compared with other advanced industrial economies.

I wish to conclude by reminding hon. Members of the Chancellor’s words in 2011. He told this House in his autumn statement:

“We are not going to save the planet by shutting down our steel mills, aluminium smelters and paper manufacturers. All we will be doing is exporting valuable jobs from this country”.

Most importantly, he concluded that

“businesses will fail, jobs will be lost, and our country will be poorer.”—[Hansard, 29 November 2011; Vol. 536, c. 807.]

I could not agree more, but unfortunately that has been the consequence of many of the Government’s ill-thought-through carbon taxes to date, which, in the absence of any comprehensive support or compensation, have damaged our competitiveness, cost vital jobs and served only to export carbon emissions abroad and not to eliminate them.

Photo of Priti Patel Priti Patel The Exchequer Secretary 1:32 pm, 11th September 2014

I welcome today’s debate and congratulate the hon. Members for Stockton North (Alex Cunningham) and for Redcar (Ian Swales) on securing it, not least because it puts me through my paces in understanding the remit, this whole field and carbon taxes. It has been an insightful debate. The Government’s position has been discussed by a number of hon. Members, but we are clear in recognising the significant role that energy-intensive industries play in the UK economy. As my right hon. Friend the Chancellor said back at Budget 2011, we are committed to ensuring that manufacturing is able to remain competitive during the shift to a low-carbon economy and have pledged to do everything we can to help manufacturers play a valuable role.

We also recognise the difficulties that EIIs have faced as a result of high energy costs, and various cases and accounts of challenges that companies have faced have been cited in today’s debate. That is why we introduced a package of reforms at Budget 2014 to radically reduce the costs of energy policy for business, particularly for manufacturing, while improving security of supply—all right hon. and hon. Members would emphasise that we must do that—and maintaining the Government’s ambition for renewable generation deployment. That package will benefit every household, business and region in the country, saving a total of up to £7 billion by 2018-19. Businesses alone will save a total of £6 billion and the package will particularly benefit the most energy-intensive manufacturers, about 80% of which are based in the north of England, Scotland and Wales, as we have heard. The package will improve incentives for companies to return their manufacturing to the UK and help existing firms to compete in the global race. I do not want us to underestimate that term: we are about competition, we are open for business, and the Chancellor has consistently made the case that this is about British jobs and keeping the United Kingdom a competitive place for manufacturing in EIIs.

Manufacturing fell from being 19% of the total economy in 1997 to 10% in 2010, as my hon. Friend David Mowat mentioned, but it has grown strongly in the latest quarter, at 3.3% compared with a year ago. Currently, energy-intensive sectors are responsible for 35% of UK manufactured goods exports. Obviously, the Government want to make the recovery of manufacturing last for the long term and be sustainable, and to have growth that is balanced across the entire UK. I think we would all agree that lowering energy costs is therefore vital for the international competitiveness of UK manufacturing.

If we had not introduced any measures at Budget 2014, UK firms would have been paying just above the average price for electricity among the 29 members of the International Energy Agency, with the proportion of this price attributable to policy costs rising over time, reaching about one third by 2020. That is why the Government announced the series of measures at Budget 2014 to radically reduce the costs of energy policy for business, particularly in EIIs. The measures included capping the carbon price support rate at £18 per tonne of carbon from 2016 to the end of the decade; extending EIIs’ compensation for the cost of the carbon price floor and the emissions trading scheme until 2019-20—I will address the points raised about compensation shortly; introducing compensation for EIIs for the costs of the renewables obligation and feed-in tariffs from 2016 to 2020, which is worth almost £1 billion, in order to protect these energy-intensive manufacturers from the rising costs of the renewables obligation and the feed-in tariffs; introducing, from 2015, an exemption to the carbon price floor for fuels used to produce good-quality electricity by combined heat and power plants for on-site purposes; and introducing new measures to make energy markets more competitive for very small businesses and to help them use smart meters to cut their bills.

I met a range of small businesses this morning. Although we are talking about large EIIs in this debate, these things also have an impact on small businesses, and the Government are very committed to listening to their concerns and addressing the issues they face. I am pleased to say that all businesses will see their electricity bills reduce as a result of this package, provided it receives the necessary EU state aid approval, which was also a subject raised in today’s debate. There will be a total reduction for business of up to £6 billion by 2018-19. The companies that use electricity intensively will see radical cost savings, as, when previous announcements are taken into account, they are now compensated for all Government policy designed to support low carbon and renewable investment up until 2019-20.

A typical energy-intensive business receiving the compensation measures in the package will save about £19 million by 2018-19. Such businesses include Lotte Chemical UK Ltd in the constituency of the hon. Member for Redcar, and GrowHow in the constituency of the hon. Member for Stockton North. Other manufacturers will also see a reduction in their bills through the capping of the carbon price support, which it is estimated will save a typical heavy industrial firm about £800,000 and a typical mid-sized manufacturer £50,000 in 2018-19 alone. That will increase the competitiveness of the UK’s energy intensive industries, which is important as this is all about supporting those industries to be more competitive, particularly in the global race. All businesses have recognised that this is about international competition and our place in the world. The Confederation of British Industry stated that our 2014 Budget package will

“put the wind in the sails of business investments, especially for manufacturers.”

The chief executive of the Engineering Employers Federation said that the Government clearly recognise the need to make UK competitiveness a priority. It is fair to say that the Government are doing their utmost to ensure that the UK is a place in which to do business. We have always said that to achieve a resilient recovery, the UK must back manufacturing.

The chief executive of Tata Steel’s European operations, which has a plant in the constituency of the hon. Member for Redcar, said:

“The measures announced in the Budget are extremely welcome. The Government has listened to the concerns of the foundation industries by introducing a limit on the policy costs they face. These measures are a clear and meaningful contribution to forging a more competitive and sustainable future for UK steelmaking sites, which employ 18,000 people directly and several times that number indirectly.”

The package of measures proves that the Government are determined to see manufacturing remain at the heart of the UK economy and competitive on the international stage.

On carbon pricing, over the next decade we need to attract investment worth more than £100 billion to replace and upgrade our energy infrastructure and to diversify the energy mix. The investment will help to ensure that the UK meets our long-term legally binding greenhouse gas emissions reducing targets and, importantly, to safeguard the country’s long-term energy security, on which we have only just touched in this debate. Establishing a minimum carbon price sends a credible signal to help drive that level of long-term investment in low-carbon electricity generation—a point that was made by Chi Onwurah. But diversification is not concerned with renewable energy alone. The Government are committed to developing a wide range of energy sources to ensure that energy prices remain competitive in the future, and of course nuclear energy and shale gas are central to that.

We welcome the announcement made by INEOS last month that it plans to enter the UK shale gas market, because we are convinced of the benefits that shale gas can bring to industrial production.

Photo of Alex Cunningham Alex Cunningham Labour, Stockton North

The Minister mentioned shale gas and other issues, but in the north-east of England, coal gasification could be a huge saver both for our region and the country. I hope that she will encourage the development of that industry.

Photo of Priti Patel Priti Patel The Exchequer Secretary

The hon. Gentleman is right that this is not about one or the other or even a trade-off, but about all players in the energy mix. We are talking about long-term energy, security of supply and competitiveness in the long-term energy market, and that requires diversity.

We are also continuing to look into the issues faced by energy-intensive industries. Today, Members have touched on the issues of carbon-reducing options and the competitive impacts. My hon. Friend Mark Pawsey, who talked about CEMEX and the cement plant, touched on the fact that there are a range of sectors that are not on the European Commission’s list when it comes to exemptions and approval of indirect costs. Let me reassure Members that this is about not just an occasional conversation with the European Commission but being absolutely firm and clear with it and pressing it on this issue. The Government, too, will look at the competitive impacts of their carbon reduction options through a series of road maps. I am talking here about the involvement not just of the Treasury but of the Department of Energy and Climate Change and the Department for Business, Innovation and Skills. This will help focus policy making more on the opportunities and barriers that energy intensive industries face, and allow Government and industry to agree on actions to deliver cost-effective decarbonisation while safeguarding competitiveness.

Over in Brussels, we will press the European Commission to review the list of energy-intensive sectors that are eligible for compensation, with the aim of extending it, given the higher energy costs they receive as a result of the EU emissions trading scheme and carbon price floor. This is an ongoing matter. It is fair to say that we are well placed when it comes to pressing the European Commission and to making our case.

We will press the Commission to provide a more targeted list of sectors most at risk from carbon leakage as a result of the EU emissions trading scheme, for its next phase which begins in 2021, so that the free allowances that these sectors receive can be best focused on those energy-intensive industries that need them the most. The Government are well aware of the cost pressures on the EIIs, and we have developed a suite of measures to reduce those costs, as well as the measures announced in Budget 2014.

Let me address the points that Catherine McKinnell made about compensation. In Budget 2011, we made it clear that £200 million was available, and much that has been spent thus far is within the eligibility of the constraints of the state aid clearance process, and that is all within the framework of the process that has been set out. The hon. Lady rightly said that the Commission published its guidance on eligibility schemes in April this year. That has not been lost on us. We are not thinking, “Well, that’s that. It’s been and gone.” We are absolutely on to this matter. I will if I may come back to the hon. Lady on this with some specifics. It is absolutely not the case that we are not looking at this anymore. We want to do everything possible to ensure that that money is going where it is needed and supporting the EIIs that need that compensation. Of course, this comes back to the statement that was made by the Chancellor in 2011. We announced measures in the Budget this year, but we know that more needs to be done, so we will follow this matter through.

We are continuing work in this area securing investment in low carbon technologies; supporting the development of a wider range of alternative energy sources; and working with individual industries as they seek to improve their energy efficiency. It makes business sense for those industries to improve energy efficiency, and they are all going through that process. We welcome this opportunity to set out the wide range of work this Government are doing to support energy-intensive industries as the UK transitions to a low carbon economy.

Photo of Alex Cunningham Alex Cunningham Labour, Stockton North 1:48 pm, 11th September 2014

We have had an excellent and informed debate this afternoon. It is clear that both the Minister and shadow Minister recognise the importance of our energy-intensive industries not just for the jobs that they support but for the products they produce for both the domestic and export markets.

It has been a truly Back-Bench debate, because it went across the political divide. There were lots of things on which we could agree, and a few things on which we could not. We have heard today of a list of world-class industries and companies that are the backbone of our economy and that need the help of this place. In her opening remarks, the Minister said that she was here to learn and be put through her paces. I hope she has been put through her paces and that when she leaves this place today, she can think that it is not about what has been done thus far, but what can be done next to support those important industries.

I am grateful to everybody who has taken part in the debate today. We have made it clear that we have shared anxieties about the pressures faced by our industries, and that those pressures cannot be allowed to run on and on. I hope and am sure that Ministers have recognised the real problems facing these industries, which provide many jobs—the numbers vary and are given as anything from 120,000 to 800,000. The industry is all-encompassing and it is important that we protect those jobs and also protect our traditional and not so traditional industries. We need to find solutions not only so that these industries are strengthened but so that we ensure that they are not diminished.

Question put and agreed to.

Resolved,

That this House welcomes the measures announced in the 2014 Budget Statement which reduce cost pressures created by the imposition of carbon taxes and levies; notes that without such measures, there is a serious risk of carbon leakage; further notes, however, that UK manufacturing still pays four times as much for carbon compared with main EU competitors because of taxes such as the carbon floor price; and calls on the Government to build on the measures announced in the Budget by producing a strategy for energy-intensive industries, as recommended by the Environmental Audit Committee in its Sixth Report of Session 2012–13, HC 669, in order to produce a fairer and more efficient system which delivers genuine potential for investment in a low-carbon economy.