EIUG says keep Competitiveness at Heart of Energy Policy

Press release issued 26 February 2003

Energy intensive industries today expressed their concern that rising energy prices, outlined in the Energy White Paper, could damage competitiveness unless other economies follow similar policy routes. According to the UK government’s own figures, industrial electricity prices are set to rise by up to 25%, and gas prices by up to 30% over the next twenty years as a result of the proposals (see note 1 below).

EIUG supports the White Paper’s emphasis on market solutions, both to ensure security of supply and in providing economic mechanisms to reduce CO₂ emissions. But the big dilemma for energy policy remains how to achieve a low carbon economy without damaging competitiveness, given that international agreement may not be forthcoming. Many competitor economies, such as the United States, Australia, and most developing countries, currently show no serious commitment to decarbonise. If the UK and other EU states press ahead unilaterally, the effect of higher energy prices on industries located in Europe – especially in the energy-intensive sectors – could be devastating.

The White Paper rightly emphasises the need for all sectors of the economy to increase energy efficiency, and for industry to develop new low carbon technologies. The energy intensive sector has long demonstrated leadership in improving energy efficiency, dating back to well before the Climate Change Levy and escalating supply costs resulting from the Renewables Obligation. The concern is that uncompetitive energy prices could accelerate the erosion of the UK’s manufacturing base, leaving industry in competitor economies to deliver the solutions.

Commenting on the government’s proposals, Jeremy Nicholson, EIUG’s Director, says: “We must not neglect the potential impact on industrial competitiveness. UK industry can and should be providing the technological solutions to address climate change and energy efficiency, but can only do this if we remain competitive. If it is driven abroad, or out of business altogether, no-one gains.”

Notes:

1. Appendix 3 of the Energy White Paper indicates the likely unit price increases by 2020 resulting from the government’s policy measures on emissions trading, renewables and energy efficiency measures.
2. In its response to last year’s consultation on the Energy White Paper, EIUG called for competitive prices to remain the central aim of energy policy, and for a multilateral approach on commitments to reduce CO₂ emissions.
3. Contrary to popular belief, UK industrial energy prices are not low by international standards. Contract prices for electricity are currently broadly competitive with most EU competitor economies, though notably above those in France.
4. EIUG represents the energy intensive sectors which produce essential materials like steel, chemicals, paper, glass, etc., that compete in international markets and depend on secure, competitive supplies to remain in business.