Memorandum by the Chemical Industries
Association (CC69)
THE UK CLIMATE CHANGE PROGRAMME
1. INTRODUCTION
1.1 The Chemical Industries Association
(henceforth CIA*) is pleased to be able to contribute to this
important inquiry by the Environment, Transport and Regional Affairs
Committee.
1.2 In its response to Lord Marshall's consultation
in 1998, CIA argued that the UK's target emissions reduction under
the Kyoto Protocol must be achieved in the most efficient and
cost effective manner; that an energy tax is a very blunt instrument;
and there are more effective ways of reducing CO2 emissions.
1.3 However, CIA has long acknowledged the
importance of responding positively to the challenges of climate
change and in helping to meet the Government's commitment to reduce
UK greenhouse emissions by 12.5 per cent of 1990 levels by 2008-12
under the Kyoto Protocol. The industry is already making an active
contribution to this in terms of our existing (1997) voluntary
energy efficiency agreement with the DETR. Under this agreement,
the industry has already improved its energy efficiency by 15
per cent since 1990—and the aim is to increase that figure
to 20 per cent by 2005.
1.4 This is a challenging target for the
industry. An even bigger challenge is to achieve the target in
the most cost effective manner without inhibiting economic growth
or damaging wealth and job creation potential through negative
impacts on competitiveness. This is why we have long argued that
climate change measures should not be focused on business alone;
all sectors of the economy have a contribution to make. In particular,
more should be done to bring messages home directly to final consumers,
eg through education campaigns, promotion of better home insulation
and better product labelling of energy efficient white goods.
(The UK is exceptional is skewing its energy tariffs in favour
of final consumers rather than for the benefit of industry).
1.5 The key facts about the British chemical
industry's economic scale and socio-economic significance are
as follows:
— 11.5 per cent of manufacturing output;
— an average, annual trade surplus
of £4 billion;
— 250,000 direct employees—and
three times that number indirectly; and
— an annual overall tax contribution
from employers and employees to the Government and local authorities
of some £4 billion a year.
2. THE CLIMATE
CHANGE LEVY
2.1 Following the Chancellor's announcement
in the March 1999 Budget of his plans for a Levy, the CIA, whilst
regretting that this kind of economic instrument had been selected,
decided to work with the grain of his announcement, and, in particular,
to negotiate an energy efficiency agreement with DETR of a kind
necessary to attract the maximum possible rebate on the levy,
so as both to preserve our international competitiveness—and
to make the most practical contribution to HMG's overall climate
objectives.
2.2 This spring we summarised our lobbying
goal as "To conclude an agreement with the Government under
which if companies in our industry take all economic energy efficiency
measures, they secure a rebate on the Levy such that they bear
no net cost".
2.3 The combination of Patricia Hewitt's
statement of 27 July on exemptions for various forms of electrolysis
and the Chancellor's recent Pre-Budget Report (9 November) with
its series of changes to the design and scope to the Levy, mean
that the big—and very real—threat that the original
Levy design posed to the industry's competitiveness has been removed.
The industry is suitably relieved.
2.4 In the short term, that is before the
relevant DETR deadline of 20 December, the Association and its
members will be working hard to finalise Heads of Agreement for
a negotiated energy efficiency agreement sufficiently demanding
to attract the 80 per cent Levy rebate announced recently by the
Chancellor. The Committee should however be aware of additional
and conflicting pressures on DETR officials to establish appropriate
legal definitions and accommodate linkages with emissions trading.
2.5 Such an agreement will be difficult
to achieve and expensive to implement, requiring substantial new
capital investment by CIA members. There is also a number of difficult
technical and organisational issues to be addressed, chief amongst
them being the issue described below, which is the key area for
improvement of the Levy that CIA wishes to highlight to the Committee.
3. THE IPPC CRITERION
3.1 Under the existing proposals, the only
sites eligible to enter into energy efficiency agreements with
the Government are those covered by the EU-derived Integrated
Pollution Prevention & Control regulations (IPPC)—or
which would be but for their size. This position was reconfirmed
by the Chancellor this month, on the grounds that he wants a definition
which provides, inter alia, legal certainty, administrative simplicity
and consistency with EU State Aid rules.
3.2 The CIA believes that the use of this
IPPC criterion is illogical as it excludes energy intensive activities
which are not covered by the IPPC regulations—industrial
gas production being a prime example. The CIA will be working
hard to extend the eligibility criterion to all our energy intensive
user members.
3.3 In particular, we propose that an energy
intensity criterion should be employed to extend eligibility through
IPPC to all energy intensive sites. In commending this idea to
the Committee, we are not only trying to limit some of our members'
financial exposure to the Levy but to produce an energy efficiency
agreement which offers the most sector-comprehensive way to contain
CO2 emissions.
4. CHP
4.1 In addition, the Pre-Budget Report includes
the proposal; to exempt from the Levy electricity in what it describes
as "good quality" CHP plant. We consider that the definition
of CHP should allow for export of electricity to the grid and
should be extended to cover other forms of embedded generation.
5. THE LONGER
TERM
5.1 The CIA recognises that international
pressures to do more to curtail greenhouse gas emissions can only
increase in the years and decades ahead. As this submission argued
above, we have never regarded the CCL as the best route to achieving
real environmental goals but, as modified, it will do rather less
damage to both the industry's competitive position and produce
rather more environmental benefit.
5.2 Looking ahead then, we do not think
that the CCL, however modified, will be a sustainable long term
instrument. Our concern is that CCL should be phased out as soon
as possible and be replaced by an emissions trading scheme which
we believe would provide a more flexible and cost effective mechanism
of helping to achieve our environmental objectives. (In the short
term it is essential that proper linkages are developed between
CCL and emissions trading but in the longer term it is undesirable
to operate both mechanisms). It is essential that emissions trading
is developed in parallel and properly integrated with international
mechanisms in order to avoid unnecessary cost burdens on UK industry.
*Note: The CIA represents 200 members operating
from 700 sites nationwide. It is the predominant trade and employers'
association for the industry, with nearly 70 staff employed at
Kings Buildings in Westminster. The Association enjoys close links
with related organisations within the UK and co-operates extensively
with the pan-European chemical industry federation, CEFIC.
November 1999
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