Government policies bad news for UK paper industry

paper recycling

The Confederation of Paper Industries (CPI) has expressed ‘concern’ that the government’s upcoming policies on energy, carbon and environment could make certain energies in the UK so expensive that it would drive Energy Intensive Industries (EIIs), such as paper, out of the country.

David Workman, Director General of CPI has now written to the Chancellor of the Exchequer, George Osborne, warning that the ‘cumulative effects’ of policies aimed at reducing carbon emissions could increase the cost of the paper manufacturing industry by several hundred millions of pounds between 2013 and 2020. According to Workman, the industry currently has an annual turnover of £5 billion and employs directly and indirectly about 100,000 people.

Writing ‘on behalf of the UK’s paper-based industries’, Workman said that the Chancellor’s forthcoming Autumn Statement (scheduled for 5 December) will be an important forum to address some of these concerns. This is because 2013 marks the introduction of several carbon cutting policies including the EU Emissions Trading System, the introduction of the Carbon Price Floor and ‘new and challenging’ Climate Change Agreement targets.

David Workman‘CPI recognises that the coalition government has enacted a number of measures over the last two and a half years to help mitigate the effects of achieving the UK’s highly ambitious carbon reduction and renewable targets. The £250 million support package for EIIs announced in the 2011 Autumn Statement was a welcome measure, but a drop in the ocean of what is needed to offset the cumulative cost impact of government policy’, wrote Workman.

Identifying that UK paper mills now use 42 per cent (1.6 million tonnes) less fossil fuel to make each tonne of paper than they did in 1990 (as quoted in the DECC review of Climate Change Agreements (2011)), Workman said that the industry has ‘done [its] bit’ and it is now the turn of government to ‘mitigate the effects’ of achieving UK carbon reduction and renewable targets.

He acknowledged that though papermaking is an ‘intrinsically energy intensive process’, UK manufacturers need internationally-favourable energy prices to remain competitive and to continue to attract inward investment. 

‘An example of misguided policy is the forthcoming Carbon Price Floor (CPF), through which the cost of electricity in the UK will be inflated as additional taxation is applied to fossil fuels when used to generate electricity. This is presented as a green measure, but fails in two key areas.

‘Technically, the aspiration to reduce carbon emissions will not be met because the overall EU emissions cap is not reduced, meaning industry elsewhere in the EU will benefit from lower costs. Practically, UK industry will be locked into guaranteed higher energy prices than those elsewhere. While the initial levels of taxation are of concern, the inbuilt annual cost increase means the cost of this policy will quickly escalate, increasing electricity costs across the UK – figures from DECC indicate substantially higher electricity costs through to the 2020s and then possibly marginally lower thereafter – guaranteed pain now, maybe less pain later!’

Workman concluded by outlining measures that the industry ‘would wish to see’ in the forthcoming Autumn Statement. These include:

  •  ‘Support for a major industrial energy efficiency programme’ by allocating a ‘substantial’ amount of the money raised from industry in Emissions Trading Scheme (ETS) and CPF taxation for this purpose.
  • A ‘rethink’ of the CPF cost escalator, as an increase in electricity related carbon costs from effectively zero in 2012 to £33 (per tonne carbon dioxide) in 2020 is ‘simply competitively unsustainable’. CPI says that ideally they would ‘seek to abandon the CPF altogether’.
  • ‘Reward and support’ investment in on-site electricity generation for self-use by exempting it from taxation, as present policies are ‘destroying the economic case to invest’.
  • Support the further deployment of ‘more efficient’ combined heat and power (CHP) generation through feed-in tariffs or ‘other support mechanisms’.
  •  ‘Accept’ that for energy security, a mix of generation technologies is required and that gas will have a major role to play through to at least the 2030s.

Environmental concerns

The letter marks an increasing divide between the EIIs industry and the low-carbon industry and environmentalists, with concerns growing over Osborne’s and Energy Secretary, Edward Davey’s, perceived preference for keeping gas as a major player in the UK’s energy future.

In September, the independent Committee on Climate Change (CCC) wrote an open letter to Energy and Climate Change Secretary Ed Davey, saying that government could breach the Climate Change Act’s legally binding target of an 80 per cent cut in greenhouse gas emissions by 2050 (on 1990 levels), if it pursues plans to see a surge in new gas investment.

The ‘extensive use of unabated gas-fired capacity (i.e. without carbon capture and storage technology (CCS)) in 2030 and beyond would be incompatible with meeting legislated carbon budgets’, wrote the group, who went on to criticise the ‘apparently ambivalent position of the government about whether it is trying to build a low-carbon or a gas-based power system’.

Yesterday (15 November), Friends of the Earth released a statement warning the Chancellor against ‘keeping the nation hooked’ on gas in the soon-to-be released Energy Bill.

“Until the Energy Bill is published we don't know what government energy policy is. But we do know the chancellor is pushing for one that will keep the nation hooked on dirty and increasingly expensive gas for decades”, said Friends of the Earth's Head of Campaigns, Andrew Pendleton.

"The prime minister must take action to stop leading Conservatives like George Osborne from pursuing an anti-green agenda and undermining investor confidence in clean energy.

"Tackling climate change was a key part of David Cameron's plans to modernise the Conservative Party – but until he tackles the dinosaurs within his party he will struggle to succeed."

Read the full CPI letter to the chancellor.