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UK Government confirms more must be done for energy-intensive industries

20 January 2014

A report commissioned by Tata Steel Europe on energy-intensive  industries' contribution to the UK economy claims the sector faces some of the highest energy costs in Europe. At the launch of the report in London, UK Business Secretary Vince Cable said he recognised rising energy costs posed problems for the competitiveness of British industry.

"Energy-intensive industry have got special problems arising from British energy costs. The carbon price floor is pricing in a disadvantage to UK producers. We recognise that,” he said.

Recent government data shows UK energy-intensive firms pay about 30% more for electricity than their main EU competitors. British household energy bills, which have been a major area of political focus in recent months, by contrast now pay below the EU average.

In recognition of the problem, the government last year launched a multi-million pound compensation scheme to shield industry from carbon costs embedded in energy bills, and payments under the scheme have already been made.

However, there is no compensation as yet for green levies such as the renewables obligation or the UK-specific carbon price floor.

Cable's pledge of support to industry will depend on him persuading the Treasury and the Energy and Climate Change Department to launch new concrete initiatives.

Karl-Ulrich Köhler, CEO of Tata Steel Europe, said that Tata's UK plants face electricity costs up to 50% higher than those in France and Germany.

"We think industrial policy needs attention, we can't just look at the sexy sectors. The renewables obligation, for example, is a double digit million pound per annum charge that is increasing the unlevel playing field we have with our peers," Köhler said.

He said he was pleased the government recognised the problem but said there was still work to be done on winning fresh concessions.

In October last year, Tata Steel, Europe's second-largest steel producer, announced plans to cut around 500 jobs in the UK, blaming a prolonged downturn in steel demand post-2008, as well as energy and climate policies.

Terry Scuoler, chief executive of EEF, the manufacturers' organization, said the current projected increases in the carbon price floor were unsustainable for British industry.
"My view is that the carbon price floor will not be scrapped but what we've got to secure (is) at least a flattening of the trajectory. Not to do so would be very damaging for UK industry," he said.

The UK's carbon price is set to rise from 4.94 pounds per tonne in 2013 to 18.08 pounds in 2015, meaning the cost of carbon for British generators could be more than four times higher than their European rivals.

According to PwC, authors of the report commissioned by Tata, foundation industries like metals, chemicals, glass, cement and wood employ 487,000 people and account for 3 percent of the UK economy as a whole.

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