Energy guzzlers to receive carbon tax breaks

Companies in the metals, chemicals, engineering and manufacturing sector receive climate change tax reprieve.

by Rebecca Burn-Callander
Last Updated: 06 Nov 2012
George Osborne has bowed to pressure from the CBI to offer tax breaks to firms hit by Britain’s climate change policies. His u-turn comes after the business lobbying organisation, alongside steel magnate Ratan Tata and Ineos CEO Jim Ratcliffe, warned that energy-intensive business would up sticks and go abroad if overly-punitive levies were imposed.

You’ve got to hand it to the Chancellor. He doesn’t balk from the odd u-turn now and then. Back in March he boasted that the UK was to become ‘the first country in the world to introduce a carbon price floor for the power sector.’ No doubt he returned to his office in No. 11 to a groaning inbox full of diatribes from captains of industry and choked on his orange jelly.

Then the CBI got involved. In June, John Cridland, director-general of the CBI, went on full offensive, warning that the complex and punitive measures would be "counter-productive" and undermine the competitiveness of the UK’s heaviest energy users.

His words did not fall on deaf ears. Osborne has now promised to help companies that use large amounts of energy by offering a ‘relief package’. This will most likely take the form of a tax rebate, much like the system currently operating in Germany.

A study into the German system was undertaken back in July by the Climate Policy Initiative. It concluded that ‘the potential impact of tax exemptions is greatest for high-energy consumption companies [Well, it would, wouldn't it? That's precisely the reason they were going to be taxed in the first place].

‘For companies consuming more than 600GWh of energy,’ the report continued, ‘the policy-induced component of the energy price is decreased by 45% on average. For companies that qualify for all exemptions, the policy-induced component of the energy price can be reduced by up to 75% (industry average) compared to companies that are not granted any exemption.' 

This is music to the ears of the energy-guzzler. Especially with the new carbon floor price of £16 per tonne looming just over a year away.

Karl-Ulrich Köhler, Tata Steel MD went on the record this week, calling the climate change policies ‘over the top’. He’ll be delighted by the turnaround, but then he has been holding pocket aces. This week he warned that a mooted £1.2bn investment in Britain was ‘threatened’ by the levy.

It’s not all about the money of course (although it mostly is), there’s also the issue of ‘carbon leakage’. Should steel production be shunted off to Asia, environmental standards are likely to be far lower and carbon emissions could go through the roof.

And then there’s plain old common sense. We’re in a financial crisis. Can we afford to sacrifice industry in order to lead the green brigade? ‘The UK is one of the weaker industrial players in Europe,’ said Köhler. ‘Why are we trying to be a leader on the green front when the economy is in such a hard place?’

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