Energy and Climate Change CommitteeMemorandum submitted by CeramFed

Executive Summary

A consumption-based measuring approach would provide a more realistic picture of the UK’s emissions performance, which could provide a “level playing field” for business and reduce carbon leakage. It would also help to ensure that total global emissions decrease by ensuring that UK emissions reductions are actual reductions, rather than merely exports.

Many of our members have foreign parent-companies and must compete internally for investment in UK plants. Many report that this funding is being delayed or withheld in the UK due to the current UK climate change regulatory climate.

We want to keep energy efficient manufacturing here in the UK. With the wrong policies we simply export jobs and import carbon. The Environmental Audit Select Committee has very sensibly recognised that the UK’s targets are flawed as they are based on emissions produced in the UK, and exclude emissions embedded in goods imported from abroad.1

Assessments of the UK’s total greenhouse gas emissions would increase when measured on a consumption, rather than a production basis.

The change in the UK’s total greenhouse gas emissions over recent years would have been an increase rather than a decrease, if consumption-emissions had been measured.

It would be possible to develop a methodology for measuring consumption-emissions; however its effectiveness would depend on consistent and fair calculation of imported emissions, which in turn may depend on the accuracy and integrity of data provided by foreign importers / manufacturers.

Transport emissions should be included in the embedded emissions of imported goods.

It would be desirable to adopt emissions reduction targets on a consumption rather than production basis; however its practicality and success would strongly depend on the methodology’s consistency and robustness.

At the international level, consumption-based reporting in the UK may encourage other countries to do the same. This would further decrease global emissions. It could also provide an incentive to countries in regions where there is little or no climate-change legislation, to improve their environmental performance, in order to remain competitive in their (UK/European) export markets.

Brief Introduction to the British Ceramic Confederation

1. The British Ceramic Confederation (BCC) is the trade association for the UK Ceramic Manufacturing Industry, representing the common and collective interests of all sectors of the Industry. Its 100 member companies cover the full spectrum of products and materials in the supply chain and comprise over 90% of the Industry’s manufacturing capacity.

2. Membership of the Confederation includes manufacturers from the following industry sectors:

Gift and Tableware

Floor and Wall Tiles

Sanitaryware

Bricks

Clay Roof Tiles

Clay Pipes

Refractories

Industrial Ceramics

Material Suppliers

3. The industry is energy-intensive (but not energy inefficient): energy bills / taxes can be up to 30-35% of total production costs. 85% of the energy used is natural gas. BCC is a member of the Energy Intensive Users Group, which supports cost-effective action to reduce global greenhouse gas emissions.

Factual Information

Export of manufacturing

4. Our members in the UK have some of the most energy efficient and environmentally regulated factories in the world. Many have made significant investments in the last decade. For instance, two of our tile manufacturers have spent over £40 million each overhauling their factories installing heat recovery and fast-firing energy efficient kilns.

5. Competition is currently distorted because less stringent, or non-existent climate-change regulation elsewhere in the world gives manufacturers in those regions a competitive advantage in the UK market, resulting in the export of manufacturing and carbon from the UK, and the import of goods to the UK (“carbon leakage”). If manufacturing in these regions is less efficient then global emissions increase.

6. Many of our members have foreign parent companies and must compete internally for investment in UK plants. Many have reported delays or withdrawal in funding due to the UK regulatory climate.

7. Being energy-intensive companies, much of the withheld investment would have been in measures that would have improved energy efficiency and reduced greenhouse gas emissions.

8. A consumption-based approach to measuring the UK’s emissions would reduce carbon leakage by reducing the competitive distortion experienced by UK manufacturers. This would create a fairer and more level playing field for manufacturers to compete.

9. If more products were produced domestically, the UK’s total consumption emissions would decrease due to decreased transport emissions and efficient manufacturing.

10. Consumption-based measurements would provide a true picture of UK emissions by ensuring that an apparent decrease in the UK’s emissions is a genuine decrease rather than a simple export of emissions that does not get counted.

UK emissions rise when measured on a consumption rather than a production basis

11. An otherwise-identical product would have a larger carbon footprint if manufactured outside the UK and imported, due to transport emissions.

12. The volume of UK imports has been and is increasing, which means that UK consumption-based emissions are likely to be increasing, even though measurements on a production-basis suggest that they are falling.2

13. The Environmental Audit Select Committee concluded (recommendation 6, paragraph 31) in their report on the 4 Carbon budget,31 “We do not share the Secretary of State’s reluctance for monitoring consumption emissions. Monitoring UK emissions on a consumption basis would facilitate a more rigorous approach to controlling our contribution to climate change. The Government should request the Committee on Climate Change to review the scope for measuring emissions on such a basis and how that might be worked into the carbon budgets regime, if necessary to complement the continuing production-based reporting needed internationally”.

Methodology for measuring consumption-emissions

14. A fair and consistent method for assessing consumption emissions should be adopted in order to provide a complete picture of UK and global emissions, and reduce the competitive distortion experienced by UK manufacturers.

15. Different approaches could be taken, depending on the accuracy and robustness required, and the quality of the underlying data.

16. The Carbon Trust has performed this work before, using a combination of two methodologies.3 This approach includes transport emissions.

17. The report used an environmentally extended bilateral trade (EEBT) model where necessary.33 This method adjusts the traditional production-based view of emissions to account for the import of emissions embodied in trade with direct partners (the emissions embodied in traded goods are subtracted from the total emissions of the producer country and added to the total emissions of the consumer country). It still underestimates total emissions, as it does not consider emissions further upstream (eg raw materials sourced from another country). The study found that this approach estimated UK consumption-based emissions to be 25% higher than those produced domestically in 2004.

18. A multi-regional input-output (MRIO) approach was used wherever possible and practica,l33 as it provides the greatest accuracy. This approach attempts to provide a fully re-allocated view of global emissions by recursively including embodied emissions throughout the supply chain. The study found that this approach estimated UK consumption-based emissions to be 34% higher than those produced domestically in 2004.

Practicality and international effects

19. Measuring emissions on a consumption rather than a production basis would help with the UK’s balance of payments and economic growth, as one of the competitive disadvantages of manufacturing in the UK would have been reduced. This would also make manufacturing investment in the UK more attractive.

20. Internationally, consumption-based reporting could encourage other countries to adopt this approach, which would lead to lower total global emissions, with the UK seen as the leader of these reductions.

21. Further global emission reductions could be achieved as consumption-based reporting would eventually encourage manufacturers in regions with little or no climate-change regulation to improve their environmental performance in their UK / European export markets.

Recommendations

22. Emissions should be measured on a consumption rather than a production basis.

23. Assessments or estimates of embodied emissions should include transport emissions.

24. Assessment or estimation methodologies should be simple, transparent, and consistently applied. The approach should be low-cost to implement in terms of direct financial costs and administrative burden.

25. Assessment or estimation methodologies should be tolerant to a reasonable proportion of incomplete or inaccurate data, for instance by adopting a “standard” emission factor for each type of product or stage in the process where an omission is identified.

Please feel free to contact us if you require any more information or would like oral evidence.

October 2011

1 http://www.publications.parliament.uk/pa/cm201012/cmselect/cmenvaud/1080/1080.pdf (accessed 19/10/2011).

2 Examples with references can be found in: http://www.bbc.co.uk/news/science-environment-13187156 (accessed 19/10/2011).

3 http://www.carbontrust.co.uk/policy-legislation/international-carbon-flows/global-flows/pages/background.aspx (accessed 19/10/2011).

Prepared 17th April 2012