09:54 Angela Smith (Penistone and Stocksbridge) (Lab)

On taxes and levies, the British Ceramics Confederation has pointed out that the Department of Energy and Climate Change’s analysis shows climate-related charges are already 19% of the base load price, and that will rise to 47% in 2020. The Engineering Employers Federation states that the Government’s estimates indicate that industrial electricity prices will have increased by 70% by 2030. Moreover, Tata Steel is clear that the green levy with the greatest impact today is the renewables obligation, which, along with small-scale feed-in tariffs, will cost £10.50 per megawatt-hour in the year from April 2014, which is an increase of more than 100% in three years. Tata also points out that many steel makers in Europe will either be completely exempt from the charge or have their charge capped at €0.50 per megawatt-hour. There is clearly a serious problem here for such industries in the UK; spiralling energy costs, compounded with myriad taxes and levies, are threatening our ability to compete, even within the EU.

As my hon. Friend the Member for Newcastle-under-Lyme asked, how should the Government act to remedy the problem? It is worth listing the array of schemes in play, or due to come into play soon: the climate change levy; small-scale feed-in tariffs; the emissions trading scheme; the renewables obligation; the carbon floor price; the energy company obligation; the carbon reduction commitment; and contracts for difference. We also have the aggregates levy and the landfill tax, but both are well embedded, and nobody would touch them. I might not even have included all the schemes on that list, but the point is made.

Secondly, industries need to see the detail of the promised exemption of ceramics and other industries from the full cost of the climate change levy from next year. The autumn statement would be a good opportunity to provide that detail, as well as detail about how the Government will negotiate a way through without falling foul of state aid rules. In addition, the expected change in guidelines means that the Government have an opportunity to exempt such industries from the renewables obligation and small-scale feed-in tariffs. EEF and the British Ceramic Confederation make reference to the impact of those two taxes on their members. Industries also want the £250 million package moulded around the ETS and the CFP to be in place for the duration of the latter policy, until 2030, and they want the value of that compensation linked to the upwards trajectory, as my hon. Friend pointed out. The contract for difference worries energy-intensive industries, too. They look for comprehensive exemption for industries, so that they can remain competitive.

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10:07 David Mowat (Warrington South) (Con)

A bigger and more worrying issue is the EU. Our big competitors are France and Germany, and we have already heard about the differential that is arising. The issue is not so much the differential today—some may disagree with me—as the direction of travel for all of us. We have talked a great deal about carbon targets since the Climate Change Act 2008. We are the only country that has carbon targets—no other country in Europe has the same degree of statutory enshrinement of carbon targets. That fact drives behaviour. We have seen that in the dismantling of the emissions trading system in Europe. To all intents and purposes, the carbon price in Europe is now €2 or €3 per tonne, but in the UK, due to the carbon price floor introduced in April, it is about €20 per tonne. That will be absolutely devastating. At the margin, power stations will go to Holland, which is now building coal stations, and supply us through interconnectors. I do not see where that gets us.

The decarbonisation target has a cost impact, as well. Nothing in the world is free. We have heard about PV tariffs; I went through the Division Lobby when the Government were reducing the subsidy for solar from six times grid parity to four times grid parity—a reasonable measure, but again, the Labour party divided on that. It is important to understand the impact of what we are voting for on fuel poverty and on the 900,000 jobs in these industries that we all care so much about.

I have put points to Labour Members about solar, about their party’s position on the decarbonisation target and about the opportunity this afternoon to vote according to their feelings on an amendment that would increase electricity prices further in the UK. I will also make a few points to the Minister, which he may wish to address. We should look at our tendency to act unilaterally, hemmed in as we are by the Climate Change Act and the fourth carbon budget and all that goes with it. I ask that we get away from EU directives on renewables and the rest. Yes, Germany is big on renewables, but it has far higher carbon emission levels than we do because it burns so much coal, and because it is building 10 more unabated coal-fired stations.

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10:26 Mark Pawsey (Rugby) (Con)

That increase has arisen partly as a consequence of the Government’s objectives on climate change and carbon dioxide emissions. Hon. Members on both sides of the Chamber today have recognised that the present and previous Administrations have gone too far and imposed an excessive burden on those manufacturers. The present Government have recognised that in their action to exempt the most energy intensive industries from that burden. The announcement by the Energy Minister in July this year was welcomed by many energy intensive industries as a start and a move in the right direction. I am sure, across the Chamber, that we hope the Minister will tell us that the Government will be able to go further. However, there are significant concerns that some industries have not benefited—cement and packaging fall into this category—because they are not eligible for the compensation that has been announced.

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10:37 Julie Elliott (Sunderland Central) (Lab)

The Minister has been asked a number of questions, and a number of comments have been made to him by Members on both sides. Many have been from those who represent constituencies where these issues are very important, so I shall limit my contribution to give the Minister enough time to reply. There is no point in repeating all the arguments that have been made very well. Many key concerns are coming through regarding the tax system for energy intensive industries. I want to highlight one of the comments made by my hon. Friend the Member for Penistone and Stocksbridge (Angela Smith): she called for clarity and pointed out that energy intensive industries support a well designed system of taxation and understand the need to decarbonise. I do not think the two things are contradictory, but one issue that most speakers have mentioned is the complex nature of the tax system and related issues. I would be very pleased if the Minister commented on those things.

I am particularly pleased that the Minister of State, Department of Energy and Climate Change, the right hon. Member for Sevenoaks (Michael Fallon), will provide the response on behalf of the Government, because I am sure that he will be able to provide some clarity on where he stands on the carbon floor price. Earlier this year, before he became an Energy Minister, he called the carbon floor price

It is vital that we keep British industry competitive, while decarbonising its activity. Much more work is needed, in conjunction with energy intensive industries, to develop a plan for how to achieve that.

It is right that the Government are taking steps to help energy intensive industries that must adapt to the EU emissions trading system and the carbon floor price. We do not want to see the UK’s carbon emissions just shifted overseas. However, if we are to meet our emissions targets and avoid catastrophic climate change, we need to reduce those industries’ carbon emissions.

Energy intensive industries are an important part of our economy, accounting for 4% of gross value added, and 125,000 people are employed by them directly or in their supply chains. Many energy intensive industries are at the forefront of the low-carbon economy, producing the mechanisms that we need to develop our low-carbon industries. That was set out in great detail by my hon. Friend the Member for Penistone and Stocksbridge. However, like all sectors of our economy, this one must decarbonise if we are to meet our crucial emissions targets. The transition to low-carbon power generation will keep energy prices down in the long run. The alternative is to remain at the whim of unpredictable yet ever rising gas and electricity prices.

As the EEF, which was formerly the Engineering Employers Federation, has pointed out, if the Government were serious about the transition to a low-carbon economy, with innovation and green jobs at the centre of that transition, they would be supporting research and development. We question why research and development on energy as a percentage of Government R and D spending is comfortably less than the OECD average. However, the bigger problem is the Government’s counter-productive, counter-science and counter-business decision not to adopt a 2030 power sector decarbonisation target, which was supported by the EEF, which represents many companies in this area. That decision, or rather non-decision, is scaring away investment, costing green jobs and jeopardising our future energy security.

The hon. Lady mentions that the 2030 decarbonisation target was supported by many companies in this sector. Could she name the energy intensive companies in this sector that support that target?

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10:47 The Minister of State, Department of Energy and Climate Change (Michael Fallon)

My hon. Friend the Member for Warrington South (David Mowat) reminded us of the need to be competitive, and he spoke of the success of shale in the United States. I reassure him that we are encouraging the search for shale in the United Kingdom. A dozen companies are prospecting, and more applications to drill are coming in. I expect the search for shale to accelerate over the next few months. He usefully reminded us that we all bear responsibility for the way in which we vote in this House, and several of us have voted in favour of climate change objectives. Indeed, we have the opportunity this afternoon to vote down an amendment that would increase energy prices for industry and business.

My hon. Friend the Member for Rugby (Mark Pawsey) championed the cement industry in his constituency, as I would expect him to. We recognise the pressures that that industry faces, which is why we have announced the exemption for mineralogical and metallurgical processes from the climate change levy. We are examining the case for the inclusion of cement and some ceramics—those that have come forward with evidence—in carbon floor price compensation.

The hon. Member for Sunderland Central suggested that the failure to set a decarbonisation target was somehow delaying investment. The House voted down the setting of a decarbonisation target in June, since when we have seen a wave of investment: not only the signing of the first new nuclear station in a generation but the introduction of a series of projects under our intermediate final investment decision enabling regime. She asked me what we were doing in respect of the Commission. My right hon. Friend the Secretary of State has regular discussions with the Commissioner. My right hon. Friend and I regularly go to Brussels to pursue cases such as CPF compensation, and we try to build support among other member states.

Does the Minister agree that climate change agreements are an important way to incentivise clean power and meet decarbonisation targets?

I agree with that, and I will come on to climate change agreements later. The Government cannot control the volatility of global fossil fuel prices, but we can help industry to exploit energy efficiency potential, which will reduce the impact of rising prices. Some of our incentives are financial ones. The climate change levy is a tax on business energy use, and the EU emissions trading system is a cap-and-trade mechanism based on the emissions of energy intensive industries. The scheme is forecast to save the equivalent of 3,100 megatonnes of CO 2 by 2020. To complement the EU ETS, we have a domestic scheme, the carbon reduction commitment energy efficiency scheme, which targets large non-energy intensive organisations. That is predicted to save the equivalent of 4,800 gigawatt-hours per year, which is greater than the annual energy use of all households in Manchester.

In addition to those financial incentives, we are working to incentivise industry through several other mechanisms. Climate change agreements, which the hon. Member for Stoke-on-Trent North (Joan Walley) referred to, are aimed specifically at energy intensive industries. They provide a discount on the climate change levy of 90% for electricity and 65% for gas, in exchange for commitments to achieve energy efficiency. She is right to remind us that they are a good example of an area in which Government and industry can work together to agree achievable objectives. More than 50 energy intensive sectors have negotiated agreements under the latest phase of the scheme, which are expected to result in an 11% energy efficiency improvement across participating sectors by 2020. Looking ahead, we have recently consulted on the new energy savings opportunity scheme, which will help larger businesses to identify energy efficiency measures that will result in average bill savings of £50,000 to £60,000 per year. Subject to legislation, the first audits under the scheme will be undertaken by December 2015.

The second leg of our reforms is the recognition of the competitiveness problems faced by some industries as a result of their energy costs, which lies at the heart of today’s debate. Rising electricity prices are a real concern for many businesses, which see them as a barrier to growth. The commitments to tackling climate change that the House has voted through have contributed to increases in those bills. That is why we have set aside up to £400 million to offset some of the costs of energy and climate change policies for the most energy intensive industries.

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