Further Memorandum by UK Steel Association
(CCO1A)
UK CLIMATE CHANGE PROGRAMME
1. INTRODUCTION
The UK Steel Association submitted written evidence
earlier this year on this subject, gave verbal evidence to the
Committee as part of the Energy Intensive Users Group and provided
the Committee with a copy of the UK Steel response to the Customs
& Excise Consultation on the Climate Change Levy. This submission
will not repeat the points made then, but will concentrate on
the request by the Committee for constructive suggestions concerning
the levy, which of necessity will be linked to the conditions
under which it is proposed negotiated agreements will operate.
However, we do wish to reiterate our previous
general point that the levy was, and still is, an unnecessary
measure. UK Steel had already made proposals for a negotiated
agreement, with penalties for failure and independent monitoring,
to Government. The levy proposal will not result in any additional
improvements in energy efficiency and CO2 reduction
compared to those obtainable from UK Steels' proposal. Indeed,
it could lead to increases in CO2 emissions, except
for the increased likelihood of plant closures, given that the
industry will have less funds for investment as a direct result
of the levy.
2. SUGGESTIONS
FOR MODIFICATION
TO THE
LEVY
2.1 Levy reduction for those entering Negotiated
Agreements
To maintain competitiveness and to make its
contribution to reduction in CO2 emissions and improvements
in energy efficiency the steel industry must continue to invest.
However, even taking into account the Chancellor's 9 November
1999 pre-Budget Statement and even if the sector meets its negotiated
agreement targets there will still be a net cost to the sector.
A residual levy will not produce any additional energy efficiency
improvements beyond those set in negotiated agreements and may
even jeopardise achievement of these. UK Steel considers that
the levy should be neutral for those entering and meeting agreements
ie levy payments should be no more than the benefit from the reduction
in NICs.
2.2 Penalty for failure to meet Negotiated
Agreement targets
Under the current proposals by Government, failure
to meet agreed targets at the relevant milestone results in complete
loss of the levy reduction for the subsequent period (two years).
This proposal fails to distinguish between gross and marginal
failure. It is akin to applying the same penalty to a motorist
who exceeds the speed limit by one mile per hour as that applied
to one 20 miles per hour in excess. UK Steel believes penalties
should be proportionate.
2.3 Coverage of Negotiated Agreements
The current proposal by Government confines
the sectors and companies that are eligible to be parties to a
negotiated agreement to those that operate installations covered
by the Integrated Pollution Prevention and Control (IPPC) Directive.
There are two reasons why we consider the coverage
should be broader than this.
Firstly, to encourage contributions to achieving
the Kyoto targets from all businesses, not just from manufacturing.
Secondly, because the current proposal is likely to lead to challenges
of unfair competition. For example; in the steel sector a wire
company that has replaced pickling with shot-blasting (probably
for environmental reasons) would be excluded from an agreement,
whilst a company retaining pickling (an IPPC process) could be
included, even though they were making the same products for sale
in the same market sector. Similarly a company using electric
furnaces for heat treatment might be excluded, whilst one using
gas fired furnaces would be included.
UK Steel believes that any company prepared
to enter the appropriate sector agreement should be allowed to
do so and benefit from a reduction in the levy.
2.4 Integration with other environmental objectives
The levy is a blunt instrument and will in some
cases have the effect of making the achievement of other environmental
objectives more expensive and more difficult. For example electricity
is used in abatement equipment to reduce emissions of particulates
to air. There is a case for exempting such uses from the levy.
Similarly the Government has legal commitments through European
Directives to increasing waste recycling. The effect of the levy
will be to make recycling of certain categories of waste less
attractive.
UK Steel considers that the effect of the
levy on the achievement of other environmental objectives should
be evaluated and the levy redesigned accordingly to address any
problems identified.
Graham D Funnell,
Head of Environmental and Technical Policy
16 November 1999
| 
