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Energy Intensive Industries

Volume 560: debated on Monday 25 March 2013

Motion made, and Question proposed, That this House do now adjourn.—(Mr Evennett.)

I had not anticipated this number of Members attending the debate at this late hour. I am delighted to see them, as it shows the level of interest in this subject. Many other Members have raised the same issues, and there were some welcome announcements in the Budget last week, but I hope to press for more detail and more information on how this issue will impact on my particular constituency. If I am not able to take all the interventions that Members wish to make, I am sure they will understand.

Corby is a town built on steel: the steelworks and the tubeworks. In 1980 thousands of men were put on the dole, including my own dad, when Corby stopped making steel, but the tubeworks continued, and my granddad worked in the stores there. Today it is still incredibly important to our local economy. Six hundred and fifty people work there. These are good jobs that pay well, and in which people learn great skills. This year, Tata took on 13 apprentices at Corby. It dispatched 250 kilotons of tubes, and exported 40% of the product around the world. It contributes more widely to our local economy. I am told that there is a multiplier effect.

As my hon. Friend knows, Tata Steel in Rotherham employs more than 2,000 people, and the effect that they have on the economy is considerable. That is why I think that the Government should introduce practical measures to support the industry.

My hon. Friend is right, and I know that she will continue to champion the steel industry in Rotherham. Steel is, of course, incredibly important to many communities around the country. I am particularly proud of Corby’s steel tubes, which can be found in Wembley stadium, in the Olympic park and in the millennium wheel. The red tubes can be found in buildings across the country.

I am pleased that, since becoming a Member of Parliament, I have been able to be active in the all-party parliamentary group for the steel and metal-related industry, which is chaired by my hon. Friend the Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) and supported by many other Members. I have also been involved with the trade unions, particularly Community but also Unite. Together, we are concerned about the impact of rising energy prices, both because of rising wholesale prices generally and because of European Union and United Kingdom Government policies, especially those that rightly seek to reduce carbon output but, in my view, have wrongly had an impact on a set of vital industries which we need as a nation, and which are part of our sustainable future.

I am not talking just about steel. We have world-class energy-intensive companies that make a huge contribution to our employment, tax revenues and exports. The Environmental Audit Committee estimates that energy-intensive industries account for 4% of gross value added, and employ 125,000 people in the United Kingdom. Concern is shared by a number of industries. The hon. Member for Rugby (Mark Pawsey) has expressed concern to me about the cement industry, and companies such as INEOS Chlor which are part of the Energy Intensive Users Group have given me helpful briefings.

Last week the ceramics industry was very much in the public eye when the Chancellor made announcements about it in his Budget statement. In my constituency, Morgan Technical Ceramics employs 200 people. It makes an incredible variety of products which are exported to more than 100 countries, but in the process it uses large amounts of gas, as do all ceramics manufacturers.

Three areas of climate policy are having a particular impact on industrial energy prices: tax, carbon prices and renewable subsidies. Of course, those apply in other European countries, but the United Kingdom Government have not listened to the calls from energy-intensive industries in the UK for help of the kind that the German and French Governments give their industries. That has two effects. First, it makes it very difficult for our companies to compete now, and secondly, when it comes to investment decisions and securing the long-term future of these industries, the global companies of which they are part are increasingly opting to move elsewhere. Morgan Ceramics, for example, tells me that it recently moved 300 jobs from the UK to France.

We have an urgent problem. Climate policies have added about 21% to current electricity prices, and the Energy Intensive Users Group estimates that the figure will rise to 58% by 2020. New extra climate-related taxes are likely to exceed current profits for many of our energy-intensive companies within the next few years, which means that their viability is in question in the medium term. Let me give two figures that illustrate the problem. The wholesale price of electricity in Germany in 2014 is forecast to be €40 per MWh, while the price in the UK is forecast to be €60 per MWh—and that is before taxes have been taken into account. That should be contrasted with the help that is being offered by Governments. The UK Government have provided a £250 million mitigation package to protect industry from the cost of the carbon prices floor and the EU emissions trading scheme. Of course, that mitigation is welcome, but the German Government are offering €5 billion in energy tax rebates to their energy-intensive industries, so we can immediately see that the concerns about a level playing field are very real.

I congratulate my hon. Friend on securing this debate. In addition to that disadvantage, is there not also a lack of clarity about how much money will be available to support energy-intensive industries, and when? That certainty is needed to secure jobs into the future, as has been mentioned.

My hon. Friend is absolutely right. Like him, I am concerned about the lack of clarity, and particularly the time it has taken the Government to sort out the compensation package.

My hon. Friend is being extremely generous in giving way, and it is fantastic that he has been able to secure this debate. Was he, like me, concerned to hear the Secretary of State for Business, Innovation and Skills admit to the Welsh Affairs Committee in January that the package was very slow in coming? He was almost admitting to a failure of his Department. Does my hon. Friend agree that the Business Secretary needs to do a lot more to push that along?

I was conflicted in preparing for this debate because, as so often with these things, the Ministers who are called to respond to the pressure we put on the Government are the very people who are listening and seeking to help. The Business Secretary has indeed acknowledged that progress has been slow. I was told in a ministerial reply on 25 February that the Government are analysing the responses to their consultation on the mitigation package, and are exploring the issue further. I hope the Minister will understand when I say that, given the vital importance of these industries, which employ 125,000 people, this uncertainty is not good enough and we need to hear the detail soon. I hope he can say when the Government will tell us how the mitigation package will work and explain the details.

The overall level of compensation is not adequate—neither the scale of financial compensation nor the duration of the scheme, which covers only the current spending review period. The Chancellor announced in last week’s Budget that there will be further support in the next spending round, which is welcome. However, on the long-term investment decisions, the scale and duration of support during the next spending round has not been made clear. Can the Minister give us further details today?

The Budget proposes a one-year extension to the current mitigation package, taking us through to 2015-16. Does that mean stretching the existing £250 million further, involving a thinner spread of money across the period, or will there be additional money? That was not made clear in the Red Book.

The announcement in the Budget of a 100% exemption from the climate change levy is good, and I am sure the Minister will remind us of that, but we must remember that it was already at 90%. The Chancellor made much of the specific exemption for the ceramics industry, which did not previously qualify for mitigation. That has been hugely welcomed and we should welcome it tonight. I pay particular tribute to my hon. Friend the Member for Stoke-on-Trent Central (Tristram Hunt) for his campaign, in which I know other Members are involved. I hope the Minister will not mind me describing the situation in these terms, but all those measures put together look like a sticking plaster. He must acknowledge that our energy-intensive industries have a long-term problem, certainly a long-term challenge.

To secure the future of France’s energy-intensive industries, the French Government brokered the Exeltium deal, through which energy-intensives have signed long-term power supply deals for low-carbon energy. That is the kind of measure we need in the UK.

Ofgem has already raised concerns about a 2015 electricity supply crunch. We know there is a lack of gas reserves stored in this country, and gas prices are highly volatile. Last Friday, the Bacton interconnector failed for several hours. Prices opened at £1.25 per therm and rose to £1.50 during the day, which shows the huge volatility within the industry. The ceramics industry is concerned that it could be the first in line if there are gas shortages. If production has to be turned off with two hours’ notice, which is a risk, given the uncertainty of supply, that could seriously damage the kilns. In the long-term we need more storage and the requirement to use it through a public service obligation, as is common in other European countries, to ensure energy security and reduce price volatility.

I have spoken about the importance of our energy-intensive industries, and how vital they are to my constituency and many others around the country, so I urge the Minister to maintain an ongoing dialogue between the Government, industry and the trade unions, which have played a helpful role. Will he commit to visit my constituency to meet Tata, with me and work force representatives, and to visit Morgan Technical Ceramics so that we can discuss the issues for that industry in more detail?

Does my hon. Friend recognise that many energy-intensive industries are keen to make significant investment, which will result in energy efficiency, but are hampered because the enhanced capital allowance system is not broad enough to encompass much of that investment and a lot of it is not eligible? Will he therefore join me in calling on the Government to re-examine this area to see whether they could expand the scope of enhanced capital allowances?

My hon. Friend makes an incredibly important point. I have received a great deal of helpful briefing from industries on how they hope to secure their industry for the long term, and I hope we will hear from the Minister about the enhanced capital allowances. If he would commit to visit my constituency, that would be incredibly welcome. I ask him to provide much more detail on the various measures that have been announced and how we might go further, so that when companies look at their operations in this country, as Tata regularly does, they can be confident that they will be able to operate in a viable way in the future because of the policies that we have advocated and that the Minister has acknowledged.

I congratulate the hon. Member for Corby (Andy Sawford) on securing this important debate. Without, in any way, wishing to sound patronising, may I say that that was a very good speech, and for someone who has been in the House for only a few months, It certainly augurs well for his career.

Let me say at the outset that I would be delighted to visit Corby. I think there had been an invitation from his distinguished predecessor but it fell with the by-election. I would be happy to visit Corby, not least as the Minister with responsibility in the Department of Energy and Climate Change, but also, wearing my other hat in government, as the Minister for business engagement with India. I am a huge admirer of the extraordinary achievements of the Tata group. I regularly meet its people, from both the steel part and the other parts of the company, but I have not yet had the opportunity to visit the Corby steel plant, so I would be happy to explore how I can find a date to do so.

I welcome this debate, not least because our energy-intensive industries make an important contribution to the UK economy and it is vital to keep them competitive. These industries are also vital to regional economies, particularly because, as the hon. Gentleman pointed out, not only do they support jobs—good, well-paying, satisfying jobs that people can build careers on—but their products are important in the transition to a low-carbon economy. Some people might think it strange that, as the Minister with responsibility for tackling climate change, I have made a point of making the case for recognising the contribution that energy-intensive industries make to our economy and urging that they get special treatment, but I see no contradiction in that at all. I have made it clear since coming into this job in 2010 that we take the challenge of decarbonising the economy very seriously and are determined to deliver our commitments, in line with the Climate Change Act 2008, which was passed under the previous Government. However, we are equally clear that decarbonisation must not mean de-industrialisation. On the contrary, if we are going to build the low-carbon infrastructure—the renewable energy assets—that we need in the UK, we will need to bring forth a new age of engineering. There are huge opportunities, in not only steel, but a range of sectors that are necessarily energy-intensive. There are huge opportunities to become more energy-efficient, to drive innovation and to become more competitive, but these industries cannot subvert the laws of physics. There is only so much that many of them can do.

I was told when I first came into the job that those industries were not suffering in quite the way they suggested and that the playing field with Europe was not so uneven, but I was continually lobbied by a number of industries, not least the ceramics industry, which does a very good job, and decided that I would only get to the bottom of it if I went to Germany myself. It is no coincidence that Germany, which over the past decade has seen a massive increase in its share of the global market for manufactured goods, particularly those from advanced manufacturing, saw at the same time a massive deployment—probably the largest single deployment in Europe—of renewable energy. The two have gone neatly hand in hand, and Germany has managed much more effectively than we have to ensure a better balance of policy, supporting the deployment of renewables with the necessary subsidy to drive those nascent industries to cost competitiveness with their fossil fuel equivalents while being sufficiently differentiating in its approach to protect energy-intensive industries.

There is a fundamental difference, however. In Germany, as I found out, the burden of policy falls overwhelmingly on the consumer, not on industry. The balance is completely different from that in the UK. The hon. Gentleman rightly pointed out that €5 billion supports the energy-intensive industries in Germany, but replicating that model in full here would entail a considerable rise in consumer bills and I am sure that he would not advocate that.

We are constrained, particularly in light of the deficit we inherited and the absolute imperative of bringing down the national debt, but we are determined to be as flexible as possible. That is why when I came back from Germany—I went there with a number of major energy-intensive companies, visited the plants and spoke to German policy makers—I lobbied hard within Government to make the case for greater differentiation for the energy-intensives. That, along with the efforts of other colleagues, resulted in the £250 million package.

This is a coalition Government who understand the imperative of supporting appropriately our energy-intensive industries, but I do not pretend that £250 million is the last word or is even enough in the longer term. The fact is that if we are to support our energy-intensive industries and watch those manufacturers grow, they will require more support. I have made it very clear that the £250 million is the first step in a longer term programme of support recognising the need for greater fiscal differentiation, but it must be aligned with our deficit reduction programme.

I cannot tell the hon. Gentleman the details from the Dispatch Box this evening, but I can reassure him that we will shortly announce the outcome of the BIS-led consultation on the £250 million package. That will include the technical details, including the emissions factors that he was seeking. We must also still obtain state-aid clearance from the EU for the carbon floor price consultation. In addition to that and the EU emissions trading scheme, we are seeking permission from the EU to begin to put the building blocks in place for a more German-style approach to the architecture. Following the consultation with stakeholders, which closed in December, we have been analysing responses to ensure that compensation is targeted at those industries that are most at risk of carbon leakage, subject to final state-aid approval. As I have said, we will publish those results shortly. As set out in the Energy Bill, we will introduce an exemption for energy-intensive industries from the costs of contracts for difference under electricity market reform, again subject to consultation and state-aid clearance.

In the Budget the Chancellor was able to go further and to take another step towards building a more differentiated package, with the announcement of an exemption for mineralogical and metallurgical processes from the climate change levy—the ceramics sector. That is allowed for under the energy taxation directive.

In Staffordshire, the news in last week’s Budget was received with great joy. The hon. Member for Stoke-on-Trent Central (Tristram Hunt), my hon. Friend the Member for Stone (Mr Cash) and many others have been fighting for the measure, but it was great news and well received.

I am glad to hear it. My hon. Friend’s representations played a part in the decision, but he is absolutely right; a number of hon. Members made the case. I have been to Stoke to see factories there and the challenges they face.

The measure will mitigate any competitive disadvantage that the UK mineralogical and metallurgical sectors face. It will help them to move to a more level playing field with their EU competitors. It also supports the Government’s growth agenda and our commitment to ensuring that manufacturing remains competitive during the shift to a low-carbon economy.

Industrial energy efficiency has a strong role to play. We cannot defy the laws of physics, but industrial energy efficiency represents a huge opportunity for UK plc to improve its international competitiveness. It is good for growth and competitiveness, and it drives our energy security. It is also key to managing costs and building margin growth. The Government are supporting industry to implement energy-efficiency measures that will help to reduce the impact of rising energy prices on industry.

We recently published our energy-efficiency strategy, which sets out our commitment to seizing the energy-efficiency opportunity, accelerating the deployment of 21st-century energy-saving measures. We will do that by connecting energy-efficiency knowledge and technologies to finance, seeking strong returns; supporting energy-efficiency innovation; harnessing the power of improved energy-use information, driving its availability and disclosure; and encouraging collective action on this new and better information.

We recognise the need to minimise regulatory impacts on industry. We have taken steps to simplify our key schemes on energy efficiency and carbon reduction. We have taken measures to simplify climate change agreements, the carbon reduction commitment and the EU emissions trading scheme to remove overlaps and reduce administrative burdens. Actions we have taken include consulting on and simplifying climate change agreements and introducing an opt-out for the EU emissions trading scheme for small emitters and hospitals. We have consulted on a process for the simplification of the CRC and on new regulations to implement the EU emissions trading scheme in the UK from this year.

The Minister is listing the many causes the Government are taking up on behalf of energy-intensive industries, but is there not a distinct lack of industrial activism? We are looking at significant structural contracts in Scotland and in Merseyside, but the British steel industry is losing out. In my area, we recently saw the loss of a potential carbon capture and storage project for Wilton, which would have added at least 30 years to existing infrastructure in the chemical industry there.

The hon. Gentleman is right to a certain extent. There are big challenges and we cannot turn around a supertanker in a short time. We have seen a consistent decline in manufacturing capacity in the past decade, and before then, but we are beginning to see a rebalancing of our economy. In the renewables sector, a great deal more of the equipment required, for example, for the massive expansion of offshore wind, has begun to be fabricated and manufactured in the UK, particularly along the east coast.

I am grateful to the Minister for giving way again. On the issue of offshore wind, recently at Redcar contracts were promised with Tata Steel to provide the base structures and with TAG Energy Solutions in Billingham to provide the monopiles, but both lost out to foreign competitors. What are the Government doing proactively with industry to roll up their sleeves and get involved so that industry can win those contracts?

I can tell the hon. Gentleman that he is wrong about TAG; it has won a significant order, which was secured after a personal intervention by the Minister at the Dispatch Box. I spoke directly to the board in Germany, and intervened actively on industrial policy. I am therefore glad that he raised that issue, as TAG has a big manufacturing future ahead of it.

We accept that large energy-intensive industries in Europe benefit from tax rebates and other exemptions, which means that their prices are significantly lower than the average for their country. However, it is important to remember that many of the exemptions applied to those industries have distributional impacts. If industry does not pay them, other electricity consumers need to pay more. As the Minister responsible for fuel poverty, I have to bear in mind those distributional impacts and fairness for those who pick up the bill.

May I say something briefly about gas security, which is topical, particularly given what has appeared in the newspapers over the weekend and the cold snap that we are suffering? We are aware of industry concerns about current high gas prices and low storage stocks, but while high prices in a spike are uncomfortable, they are a sign that our market is working and that we are attracting the gas that we need through a diverse range of infrastructure. Price volatility is not something that we can completely remove, and nor should we seek to do so, from our market. It is the key mechanism that enables our market to balance efficiently at the lowest cost to consumers, and it incentivises investment in new infrastructure such as storage.

Our market is resilient to global events, and has spare import capacity built in. However, we take gas security and the risk of harmful gas spikes seriously, and we are determined to do more. We are working with Ofgem to review our market arrangements, to ensure that they continue to provide secure supplies to consumers at a fair price. At the same time, we are diversifying our energy mix to reduce our dependence on imported fossil fuels, and have put in place robust policies to cut energy demand.

In conclusion, I very much welcome this debate on energy-intensive industries. I commend the hon. Member for Corby on making a compelling case. He is right to hold the Government to account on this issue, but I can assure him that we take it absolutely seriously. We are determined to do more within the context of the difficult economic and fiscal situation that we inherited, but we recognise the benefits of acting now to ensure that we maintain these industries at the same time that we build a secure low-carbon future. Those policies are designed to deliver efficient, low-carbon, secure and affordable energy supplies.

Question put and agreed to.

House adjourned.