Ministers should abolish a carbon tax that was only announced in April, the head of the manufacturers' association told the Financial Times on Monday. Yet the Treasury and the Department for Business, Innovation and Skills (BIS) are already busying themselves with the preparation of a package of measures to support energy-intensive industries affected by the tax, such as steel, aluminium, chemicals and paper. Details are due in the autumn, but its objectives are already clear: to reduce the impact of the carbon tax, which was introduced to make polluters pay for a greater proportion of the pollution they create.
Given that the tax's express purposes is to make polluters pay, it might seem odd to then reduce its impact on energy-intensive industries, which are alone responsible for 45% of total UK business and public sector emissions. But there could be logic in this counter-intuitive approach, as there is a case for governments to provide temporary, short-term support to help polluting industries evolve and succeed in the carbon and resource constrained world that we now inhabit.
If the package is actually designed to support the transformation of energy intensive industries, so they can become part of the solution toclimate change and the other environmental challenges, that would be a tremendously good thing. The government could do this by providing greater financial support to cover the upfront costs of installing the greenest and lowest-carbon production methods, working to research and deploy cleaner technologies with industry, and promoting tougher regulations in Europe and internationally.
Instead, there is a risk that the energy-intensive industries package does none of this, and that it merely becomes a crude tax rebate for the very worst polluters. It would be yet another subsidy, complementing the staggering windfall that energy-intensive industries received under theEU emissions trading scheme. If this comes to pass, it would be a missed opportunity. For it would do nothing to support the adoption of sustainable, low-carbon production methods and the retooling of industries, and by reinforcing the status quo, it would actually harm our international competitiveness in the future.
This scenario would be the result of a successful and concerted lobbying campaign. We are often told by those captured by extractive and energy-intensive industries that the polluter pays principal is too painful and that jobs will be lost or sectors will move overseas. But protecting industries from future competitive pressures, such as carbon intensity and resource efficiency, will make sectors less internationally competitive in the future, not more. And being wedded to sectors where we lack a clear comparative advantage, while simultaneously stymieing needed structural change, is hardly likely to improve economic performance.
The case for increasing the pressure for change becomes stronger if you look at where growth is going to come from in the future. The UK steel sector, for example, now employs just 2% of the number currently employed in the low-carbon and environmental goods and services (LCEGS) sector (18,900 v 910,000). And while the UK as a whole remains the seventh largest economy in the world, for production we are now ranked only 18th for steel, 23rd for aluminium, and 29th for cement. This follows a long-term downward trend.
In complete contrast and despite its relative immaturity, we now have the sixth largest LCEGS sector in the world and this is growing at over 4% a year – well above growth in the rest of the economy. In each LCEGS area the UK has a global share of between 3.2-3.8% and in carbon finance we have a global share of 11.7%. These are going to be increasingly important areas for us to earn our way in an increasingly competitive global economy. The future lies in the new green economy, not the old polluting one.
The other argument deployed against progress is that there are no alternatives. This is patently false. In high-carbon industries there are many credible alternatives emerging. For example, concrete can already be produced that actually captures and stores CO2 in the built environment. There are also low-carbon steelmaking processes being developed, such as alkaline electrolysis, that with the right support could be commercialised and deployed successfully.
The challenge is not finding low-carbon alternatives with a lower environmental impact – plenty exist and many more will be developed. The real challenge is creating a route to market for these technologies and this will never happen if incumbents are not encouraged, supported and ultimately forced to evolve, or are allowed to continually block progress. This is why policy makers must act to level the playing field through appropriate carbon pricing and regulation, while creating time-limited windows where the government and industry can work together to develop solutions.
The environmental challenges we face mean that we cannot continue to pursue two different strategies simultaneously: support for greener, low-carbon technologies, while continuing with business as usual in polluting sectors. We can't conveniently have it both ways and the sooner we realise this and act on it, the sooner a cleaner and safer future will arrive.
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