CPI urges UK government to rethink proposals to introduce new tax on carbon, says tax will increase cost of electricity, threaten competitive position of electro-intensive manufacturing like paper manufacturing in the UK

Kendall Sinclair

SWINDON, England , March 19, 2013 (press release) – Confederation of Paper Industries (CPI), the trade association that represents the UK’s Paper-based Industries, is calling on the Government to urgently rethink its proposals to introduce a new tax on carbon. CPI believes the proposed tax will increase the cost of electricity and threaten the competitive position of electro-intensive manufacturing in the UK. 

Carbon Price Floor (CPF) works by taxing coal and gas when used to generate electricity – the tax applying both to electricity generators and industrial users. Generators will pass this new cost on in the form of higher bills to customers. However, industrial users have no possibility of passing this increased cost through to customers. Doing so would result in them becoming less competitive compared to manufacturers based outside the UK, who are not exposed to this new tax.

CPF starts at a relatively low level, but annual increases mean it will quickly become a major additional cost. CPI estimates a net increase in electricity costs of 2.4% in 2013, rising to 16.1% in 2020.

The Government has to some extent recognised these issues for energy-intensive installations and is developing a compensation package to o! set some of the additional costs arising from the CPF. However, European Commission rules limit this compensation to around 68% of the additional cost, and the UK is developing additional rules to limit compensation to only those most electro-intensive sites su! ering the greatest impact on their pro" tability. Even worse, details of the compensation package are not ready as the new tax starts and the compensation will only be guaranteed for the next two years. This results in serious uncertainty for operators and potential investors.

At a time when major concerns are being raised over the escalating cost of energy and Government is seeking to support Manufacturing Industry, there is no logic to implementing this new tax beyond a cynical ploy to raise more revenue for the Treasury, irrespective of the consequences of the policy.

Accordingly, CPI calls for:

• An early re-assessment of the CPF escalator - £30 by 2020 and £70 by 2030 is una! ordable for customers.

• The extension of the compensation package to cover as many industrial sites as possible and for compensation to be con" rmed for the full period of the CPF.

• A simple exemption of on-site Combined Heat and Power (CHP) from CPF - both to incentivise deployment of this carbon saving technology and avoid complex administration to return tax to operators.

• Using carbon related taxation for a major programme of industrial energy e# ciency.

• A renewed push for climate change policies to be set on a global basis to avoid destroying UK competitiveness.

David Workman, CPI Director General said:

“The imposition of these additional and quickly increasing costs on UK Industry is a massive blow to competitiveness. Paper manufacturing is both capital and energy intensive - the Government policy to drive up long term energy costs, irrespective of what happens elsewhere in the world, can only be seen by investors as signalling a lack of interest in supporting UK manufacturing. “Climate Change polices must be delivered on a global basis and certainly across the whole of the European Union. UK-only polices that increase manufacturing costs can only drive investment and jobs to our neighbours and places outside Europe with unconstrained carbon costs. It makes no sense to destroy UK Industry and then simply import manufactured goods with embedded carbon.”

ENDS

Notes to Editors

CPF is in Two Parts

As a UK-only tax, CPF will simply add to the cost of manufacturing in the UK and (because there is no link to the number of carbon permits) it will have no overall impact on the release of carbon dioxide, as the overall e! ect will be to make it cheaper to release carbon dioxide elsewhere in the EU. While the scheme is intended to encourage the development of low-carbon energy generation, for existing companies (with no opportunity to avoid using gas or grid electricity) then CPF is simply a new and quickly increasing production tax, with limited opportunity to pass through costs to customers without losing market to imports.

There is an on-going and unresolved debate on the economic costs of generating electricity from renewable sources, verses traditional fossil fuel. Hopefully the cost of renewable generation will become more competitive, with reduced costs as technologies mature and if the cost of gas increases as Government assume. If this happens, most will bene" t from lower prices than would otherwise be the case. However, CPF e! ectively increases the cost of fossil fuel, so guaranteeing UK consumers pay more for energy by ensuring wholesale prices will be higher than they should be.

UK Papermaking

The UK has 52 Paper Mills producing approximately 4.5m tonnes of paper and board annually (approximately 10m tonnes of paper and board are used annually in the UK). UK Paper Mills have reduced the total energy required to make a tonne of product by 34% (much of this saving from the deployment of CHP) and now emits 42% (or 1.6m tonnes) less fossil carbon dioxide each year (1990 compared to 2010, " gures quoted from audited Climate Change Agreement returns to Government). 2012 saw increased exports and reduced imports – a welcome change to historic trends.

• CPI aims to unify the UK’s Paper-based Industries with a single purpose in " ercely defending their interests and promoting paper’s intrinsic value as a renewable and sustainable " bre-based material.

• CPI represents the supply chain for paper, comprising recovered paper merchants, paper and board manufacturers and converters, corrugated packaging producers and makers of soft tissue papers.

• CPI represents 67 Member companies from an industry with an aggregate annual turnover of £5 billion, 25,000 direct and more than 100,000 indirect employees.

• The paper industry is a relatively small user of wood; only around 11% of the wood extracted from the world’s forests is used in paper and pulp production.

• Of the " bres used to make paper in the UK, over 70% comes from paper collected for recycling by households and businesses. The rest comes mainly from virgin wood " bre from trees grown in sustainably managed forests.

• Between 1990 and 2010, the UK Papermaking Industry reduced energy use by 42% per tonne of paper made, and emissions of fossil carbon dioxide by 1.6m tonnes.

• Over 80% of all corrugated cardboard boxes are recycled, giving the corrugated industry the best UK recycling rate of all packaging materials.

• For additional information on the UK’s Paper-based Industries, in the " rst instance, please contact Annabel Cotton, Communications Manager, on 01793 889612 or email acotton@paper.org.uk

• Alternatively, please visit: www.paper.org.uk

• Follow us on Twitter: @Confedofpaper

* All content is copyrighted by Industry Intelligence, or the original respective author or source. You may not recirculate, redistrubte or publish the analysis and presentation included in the service without Industry Intelligence's prior written consent. Please review our terms of use.