Penalise energy waste, not use

Energy efficiency agreements offer a fair alternative to the Government’s climate change levy, argues Judith Hackitt

In March, Chancellor Gordon Brown announced plans for a climate change levy on energy use by business from April 2001. This was heralded as implementing Lord Marshall’s report and as being revenue neutral, because it would be linked to a cut in employers’ national insurance contributions. Wrong on both counts, Mr Brown.

The Marshall report stated that preserving UK competitiveness was paramount, and that any tax would need to be carefully designed.

As for revenue neutrality, even after the exclusion of electrolysis from the levy, the Chemical Industries Association’s 200 members are facing a bill for £125m a year, but a rebate on national insurance contributions of only £10m.

If we secure an agreement with the Department of the Environment, Transport and the Regions, we may get a 50% rebate on the levy. But chemicals – the UK’s number one manufacturing export earner – will face an extra tax burden of £55-£60m a year. We are committed to helping meet the UK’s Kyoto target for cutting greenhouse gas emissions, but this levy is not the answer.

The chemicals industry is a global business – over 70% of UK production is exported, much of that outside the EU. Over half of CIA members’ UK sites are owned by non-UK multinationals with sister facilities around the world. Our customers buy in the global market, so UK producers will not be able to pass on the extra cost of the energy levy.

The impact of the levy will be to drive manufacturing overseas, and UK jobs losses will far outweigh any jobs created by cutting national insurance contributions. Hardest hit will be the traditional manufacturing heartlands of the Midlands, north east, north west and Scotland.

The UK will have met its Kyoto target. But by driving manufacturing overseas, the problem will merely be shifted out of the UK, not solved.

Nor would a carefully designed levy specify that only sites covered by Integrated Pollution Prevention and Control regulations can enter into an agreement to get a rebate.

The levy as it stands is based on an assumption that all energy use is bad. We do not subscribe to this. What is bad is wasteful, inefficient use of energy. This is the issue the Government should be addressing.

We have put forward a proposal to the Government that states: `The climate control levy should stimulate companies to join demanding, energy efficiency schemes, irrespective of the company or sector.’

Advantages of our proposal are:

* it would be open to all industry;

* it would change behaviour and promote an energy-efficient culture; l companies entering into challenging agreements and meeting targets would enjoy true fiscal neutrality via rebates, exemptions or capping mechanisms, as in Germany;

* business users that do not form agreements would pay the full levy;

* the UK would meet its Kyoto targets, but with industrial competitiveness preserved, and manufacturing industry continuing to underpin the UK economy.

The only drawback would be that the Government would not raise £1.75bn from the tax to fund a cut in national insurance contributions – but we challenge this link. The levy should help protection of the global climate, not fund social policy.

CIA members are already committed to achieving an energy efficiency improvement of 20% between 1990 and 2005. We don’t need the threat of a levy to play our part in meeting the UK’s target for cutting greenhouse gas emissions. Our proposal represents the win-win solution we are all looking for.

Judith Hackitt is business and environment director of the Chemical Industries Association