Soaring green energy charges will make British industry uncompetitive compared with other leading countries by the end of the decade.
A study by the Government’s Department for Business found that electricity prices for manufacturers and other major energy users are set to rise as a result of tighter environmental regulations and taxes.
The study shows that the increase in costs will far outstrip those faced by industrial companies in other leading European Union countries that are pursuing a less ambitious green agenda.
Manufacturers said that the findings were “extremely worrying”, and warned that factories in Britain could be moved overseas, where environmental regulations were weaker and energy prices lower.
According to the report being published today, the new charges will add another £28 per megawatt-hour (mWh) to the existing price of electricity paid by British industry of just under £70 per mWh. Prices will rise by £17 per mWh in Germany and by £15 per mWh in France as a result of their governments’ green charges. Prices outside the European Union will rise by even less, with costs going up by £1 per mWh in India and £10 per mWh in China, while they will fall slightly in the United States.
Ian Rodgers, director of UK Steel, said: “However you cut this report, the findings paint an extremely worrying picture for the UK’s steel industry, from now to 2020. The fact is that we are operating in a global marketplace but operating under different economic rules.
“The ability to pass on the cost of energy and carbon is limited for those sectors which compete in fiercely globally competitive markets such as steel. EEF [the manufacturers’ trade body] has warned that, unabated, this could lead to ‘carbon leakage’, where production and investment is shifted to regions without carbon controls and where manufacturing costs are therefore cheaper.”
Full report: An international comparison of energy and climate change policies impacting energy intensive industries in selected countries
see also: FT: Steelmakers hit hard by green taxes
By Pilita Clark, Environment Correspondent
Green policies are costing Britain’s steelmakers and other heavy electricity users at least double what some of their main European rivals are paying and even more than others in Asia and the US, a UK government report has found.
And by 2020, the combined cost of measures such as renewable energy subsidies and greenhouse gas emission standards in Britain is likely to be double what it was in 2011 for high energy users.
The findings in the 232-page report prepared for the Department for Business Innovation and Skills underline the criticism voiced by Tata Steel and other industrial companies that environmental levies risk making the UK uncompetitive.
“This report provides clear, independent evidence supporting concerns we have long put to government – that UK manufacturers in energy intensive sectors are paying more for their electricity than many of their global and European competitors,” said Terry Scuoler, chief executive of EEF, the manufacturers’ organisation.
“Both the Treasury and the Department of Energy and Climate Change believe we must not outpace our competitors in loading costs on to hard-pressed businesses. However, this report shows that there is a mismatch between intent and reality.”
George Osborne, the chancellor, announced plans for a £250m package of measures in last November’s autumn statement, aimed at reducing the impact of green policies on the most electricity-intensive industries from 2013.
Some environmental campaigners said this amounted to a “polluters’ charter” but industry groups seized on the findings of the BIS report to argue it showed even more needed to be done.
“The report confirms that the measures set out by the chancellor do not go far enough,” said Ian Rodgers, director of UK Steel.
“Despite the report clearly demonstrating that rolling out renewable energy accounts for the biggest proportion of the increased cost, the government has yet to commit itself to helping offset these unilateral price increases and ensure the UK remains a competitive economy.”
The BIS report compared UK energy costs with those of several European Union countries, including Germany and France, as well as those in the US, China, India, Japan and Russia.
It found base electricity prices for energy intensive users in the UK were much lower than in countries such as Japan; similar to prices in China and India, but higher than those in the US, Germany, France and Russia.
The UK has “relatively high” incremental policy costs, however, “mainly due to renewable energy costs”, the report said. These extra green costs amounted to £14.20 per megawatt hour of electricity in the UK in 2011, for instance, compared with £6.30 per MWh for Germany and £2.50 for France. This was partly because some countries, such as Germany, had a policy of limiting such clean power costs for high energy users.
But it was also due to UK policies such as the carbon price floor, a plan to make companies pay more for their carbon emissions if the market price falls below certain levels.
However, the report did not take account of the chancellor’s autumn statement measures, which have yet to be fully detailed, and said some of its other estimates “should be treated with a note of caution” because of the uncertainty about the impacts of measures such as Germany’s nuclear energy phaseout.
A BIS spokesman said as well as the chancellor’s £250m package, ”the government is also exploring options for reducing the impact of electricity costs on electricity-intensive industries as a result of electricity market reform policies where these have a significant impact on their competitiveness, subject to value for money and state aid approval”.