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21 February 2012
The Confederation of Paper Industries (CPI) has again drawn the attention of the Chancellor to the potential impact of the proposed Carbon Price Floor (CPF) on the competitive position of Energy Intensive Industries (EIIs) in the UK.
CPI analysis suggests that the new measures will increase Papermaking sector electricity bills by 2.4% in 2013, rising to 22.3% in 2020, as well as potentially making sector Combined Heat & Power (CHP) plants uneconomic to operate.
The measure is intended to provide investment certainty over the price of carbon (when released from electricity production) to those considering the installation of low carbon generation in the UK. It works by setting a pre-set
price for carbon in the UK by topping up the price set by the European Union Emissions Trading Scheme (EU ETS) by the imposition of a new tax on electricity generators based on the fossil carbon content of fuel. This new tax will be retained by HM Treasury rather than being reinvested in new low carbon generation plant or energy efficiency.
Those already operating low carbon plant (such as nuclear) will receive windfall higher prices for their electricity. These additional taxes and windfall profits will be provided by those paying electricity bills from distribution companies passing through higher costs from generators.
The Government has acknowledged the potential industrial damage arising from these proposals and partially offset the impact by adjusting the Climate Change Levy discount - arising from membership of a Climate Change Agreement (CCA) - from 65% to 90%. However, since the discount was only reduced from 80% to 65% in April 2011, this help mostly replaces the support recently removed. Nevertheless, the support is welcome and does offset some of the CPF cost in the early years, though this quickly falls away as the CPF is progressively ramped up from £16 in 2013 to £30 in 2020. The government has also announced £110m to target electricity intensive industry, though details of how this finance will be deployed have yet to be released.
In addition to the CPF related cost increases starting in April 2013, the Papermaking sector will also be severely hit by changes in the level of allowances provided to cover EU ETS CO2 emissions. From January 2013, no free allowances will be provided to cover emissions related to electricity production. As well as the CCA support, Government has also announced an intention to provide around £100m to offset these additional costs, though again final details have yet to be announced.
David Workman (CPI Director General) commented:
“We urge the Government to rethink this measure before further damage is done to UK industry – once a site closes it is almost always gone for good. Papermaking is a sector accepted as at risk of carbon leakage, as carbon related costs not faced by overseas competitors cannot be passed on to customers without losing business to imports from producers based in locations with lower carbon costs. The EU ETS seeks to place equal carbon costs on operators anywhere in the EU. The UK Government alone seeks to add to these costs for operators based in the UK. I can do no more than echo comments made recently by the House of Commons Select Committee: ‘The Government’s decision to set a unilateral Carbon Price Floor could have a “devastating effect” on UK industry and will artifcially raise electricity prices for consumers, while having no overall impact on emissions’. Carbon costing can only be properly addressed through a genuine global agreement linked to the existing EU ETS. A UK Carbon Price Floor simply locks producers in the UK into a high and quickly increasing carbon price not faced by competitors abroad.”