Energy Policies Threaten U.K. Chemical Industry

June 21, 2011
Government plans call for a 60% reduction in emissions by 2030.

U.K. Energy Secretary Chris Huhne has been warned that his "blinkered and dogmatic" energy policies pose a threat to the country's £60 billion ($98 billion) chemical industry and its 600,000 jobs.


The charge is made in "Chain Reactions: How the Chemical Industry Can Shrink Our Carbon Footprint," a report compiled by independent civil policy think tank Civitas, of London. The author, Civitas research fellow David Merlin-Jones, argues that by pricing energy-intensive industries out of the U.K. via green levies and taxes, the "greenest government ever" is actually smothering the emerging low-carbon economy.

Huhne proposes plans for a 60% reduction in emissions by 2030, which Merlin-Jones says is too much, too soon. "A better way to tackle climate change is not through the hasty decimation of industry, but the long-term nurturing of existing low-carbon innovation as found in the chemical sector," he writes.

In the report's foreword, Brendan Barber, general secretary of the Trades Union Congress, London, notes that at this crucial moment in energy policy making, the government must strike the right balance between its climate change and industrial polices.

Merlin-Jones reports that, on average, for every metric ton of carbon dioxide used in the chemicals industry, two metric tons are saved down the line. This ratio could double to 4:1, provided that the government policy fostered -- rather than punished -- the sector.

However, short-term green policies have failed to take into account long-term emission reductions offered by the chemicals industry, he notes. For instance, insulating materials have an emissions saving ratio of 233:1.

At the heart of the problem is the U.K.'s 2011 budget, which promises a carbon price floor. Current plans are set to push the price to £30/mt ($49/mt) of carbon dioxide by 2020. This doesn't take into account other levies such as the Renewable Obligation (see, When all of these are pooled together, Merlin-Jones says the average energy-intensive company's utility bill is set to rise from £3 million ($4.9 million) to £17.5 million ($28.7 million) by 2020.

Meanwhile, Huhne argues that his plan for a 60% reduction in carbon dioxide emissions by 2020 (versus a1990 reference point) -- 14% higher than the European Union's goal  -- is necessary "for our sheer economic self interest -- precisely because it will send out clearer carbon price signals and allow us to develop more rapidly across all those low-carbon sectors."

Not so, contends Merlin-Jones: "There's no economic benefit to pricing ourselves above competitors. Moreover, unrealistic goals have created an approach that relies on forcing out the chemicals sector, despite the fact that its developments are the only way to reach the long-term target of an 80% reduction by 2050 -- let alone the huge leap of an extra 40% cut in ten years from 2020–30."

However, the author also points out that all is not yet lost: "Huhne's 60% plans are not yet enshrined in law, nor is the carbon price floor. There is no reason Britain can't maintain parity with European energy costs. Image is not everything and green policies should not be driven to the point where they undermine actual emission reduction. It's not an either/or situation: there is no reason Britain can't support industry and reduce its carbon emissions. If energy costs are kept competitive, the U.K. will create the fertile environment required to produce a low-carbon industrial renaissance."

For its part, the Chemical Industries Association (CIA), London, recognizes that the sector faces a new competitiveness challenge. Reacting to Huhne's announcement, CIA boss Steve Elliott acknowledges the government's acceptance of the need for transition measures, but cautions that unless these measures are effective, energy-related costs (already the highest in Europe) could rise from 10% to over 100% of profits -- turning successful green product companies into loss-making concerns.

Elliott notes the chemical and other industries want to work with government to make sure the green future can be delivered. However, if measures are half-hearted, manufacturing jobs and companies delivering low carbon solutions will be ripped out of the industrial heartlands of the U.K. with very little prospect of new businesses willing to invest.

Seán Ottewell is Chemical Processing's Editor at Large. You can e-mail him at [email protected].

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