Budget 2011 and Environmental Taxes

Written evidence submitted by INEOS Chlor

1. INEOS Chlor is a manufacturer of chlorine and caustic soda. We operate in the UK, Norway, Germany and Sweden. The electrolytic processes we operate are very energy intensive and electricity is a key raw material, representing approximately 60% of our manufacturing costs.

2. The cost of carbon - either through the EU ETS or as proposed here as Carbon Price Support - has a direct and significant impact upon our costs of production, as do all other energy taxes.

3. The products we produce are globally traded and we cannot pass on additional costs that are not faced by our competitors. As a result, badly implemented energy and environmental policies have the potential to severely impact the ongoing viability of our business within the UK.

Carbon Price Support and Carbon Leakage

4. If the UK is to contribute fully and properly to reducing anthropogenic CO2 emissions, Government policy must achieve two goals:

· the UK must become a low carbon economy, in particular with respect to energy (electricity) production; and

· the UK must manufacture the energy intensive goods it requires within this low carbon economy.

5. We see clear evidence of a considered plan to achieving the first of these aspirations, with binding emission targets and a route map to a low carbon economy.

6. Unfortunately, there is however no evidence that due regard has been given to the latter. There appears to be no consideration of the needs of energy intensive industry and no plan for helping industry manage the transition from a fossil fuel economy to a low carbon one. This is a dereliction of both economic and environmental policy. Without urgent action from the UK Government we are faced with the progressive abandonment of the UK as a manufacturing centre for energy intensive goods, and the export of our carbon emissions.

7. The UK should be seeking to export energy intensive goods into higher carbon economies, creating jobs and economic growth within the UK alongside delivering significant and real environmental benefits. This will not happen by chance. The political will that has driven the decarbonisation agenda needs to be applied to a manufacturing strategy that will allow the transition to a low carbon economy.

8. Energy intensive manufacturing industry does not need subsidy, but it does require a recognition that the costs of carbon, either through EUETS or proposals for Carbon Price Support (and other energy tax measures), create a far from level playing field, which must be addressed.

9. The impact of environmental policy on energy intensive industry within Europe is already creating an unacceptable burden. Whilst there is some support for the costs faced as a result of direct CO2 emissions, the impact of "indirect emissions" is much more significant for electro-intensive industry. Without adequate support for such costs, we face a very difficult future within Europe. The Government is now raising the prospect of an additional and unique UK-only cost through the Carbon Price Support mechanism.

10 The Carbon Price Support mechanism seeks to deliver additional certainty for low carbon investment. The reality is that as planned it creates an equal but opposite certainty that there will be no investment in electro-intensive industry and as a result the prospect of its terminal decline in the UK. We face the very real risk of exporting energy intensive manufacturing to high carbon economies elsewhere in the world, and increasing global CO2 emissions through ill considered policy.

18 April 2011