UK climate change targets will ruin British industry, and make the problem worse

Britain's climate change targets please the Guardian but will destroy our cleanest industries, expert warns.

Chris Huhne, Climate Change Secretary
David Merlin-Jones
On 17 May 2011 13:06

Chris Huhne has done it again. No, I’m not talking about certain allegations, but about carbon emission targets. A few months ago, he was pushing the EU to raise their 20 percent reduction by 2020 to 30 percent.

Now he wants the UK to pledge a 60 percent cut on 1990 levels by 2030. This is madness on many levels -- not least because in trying to reduce emissions so quickly, he is likely to undermine the British-based companies, and the innovation from them, which might deliver this. Counter intuitive? You bet.

It is expected that Huhne will announce his plans to Parliament imminently. While environmentalists have been patting themselves on the back, and lobbying the Prime Minister to support the move, Vince Cable and George Osborne have been voicing concern about the effect it will have on the economy. Quite right too. But what seems to have been missed so far is just how ambitious the UK’s existing carbon goals are.

While the rest of Europe is aiming for a 20 percent cut by 2020, the Climate Change Act has obliged Britain to undertake a 34 percent reduction. The Guardian’s joyful rejoinder that will Huhne will now “place Britain at the forefront of the global battle against climate change” is misplaced: we already are, and we are already paying the price.

The number of climate change related regulations in the UK is increasingly annually, as are the costs for businesses. The largest overhead for many energy-intensive sectors -- such as the chemicals, steel, cement and glass industries – is undoubtedly the huge energy bills they face. Raising this cost still further, even a fraction, can have dire consequences.

The carbon price floor, another product of misplaced priorities, is likely to price EU ETS carbon permits above their actual market value by setting a minimum price. Punishing British businesses alone this, the government says, would raise bills by just two to six per cent. For an average energy-intensive firm, that means £60,000 to £180,000 when it comes into force in 2013. These are substantial erosions into a company’s bottom-line.

Being ahead of the pack on energy costs is lethal to economic prosperity. Many sectors face intensive international competition, so these levies cannot be passed onto consumers in the form of higher prices. As a reaction, some companies have collapsed and others have emigrated, relocating to countries that value and support manufacturing rather than penalising it.

But what of the environment in all this – isn’t this the way to avert climate change? Sorry, but no, it’s not.

The government has fundamentally misunderstood the problem. Many of the companies who will suffer higher energy costs are those who manufacture low-carbon products or goods that help households and businesses to reduce their carbon footprint.

However, just because the goods themselves might be environmentally beneficial, does not mean their manufacture is emission free. For example, fuel economising tyres are the product of an energy intensive process, but for every tonne of CO2 ­generated in production, 51 are saved through the product’s use.

Huhne’s policies are only acting on the first side of the equation and do not take into account the other, more important side. In other words, the government’s approach is actually undermining the low-carbon economy it claims it wants to promote.

The solutions to all carbon related woes will be solved in time, but pricing the companies researching these answers out of the UK before the developments have been made is folly. While their elimination may help Britain reach its short-term targets (at high economic cost), the 2050 goal will be all the harder to achieve without the help of industry. The fight to reduce emissions is a marathon, not a sprint.

Worse still, the departure of companies to countries with few or no emission regulations means the pollution is simply taken abroad and increased. The UK could see its emissions fall, while global emissions, the real concern, might actually rise. This carbon leakage is well documented, but Huhne and his clique seem indifferent to the risk that their “enlightened” policies could increase rates of air pollution based disease in poorer countries.

The UK is responsible for just two percent of global emissions, so even if the country became carbon neutral, 98 percent would remain. The economy, along with the livelihoods of many, would have been sacrificed for very little. A new approach is needed, and one which recognises that Britain is much better placed to help reduce global emissions through the low-carbon manufacturing economy.

This is something that already exists in the UK, but not as the government mistakenly understands things. Instead, we have a much sounder basis for real sustainability where Britain is exporting the products and pioneering the innovations required to help other countries reduce their emissions.

For this to continue, we need competitive energy costs, and a government that isn’t trying to price industry out of the UK and off the emissions balance sheet. Above all, we need a government that is willing to prioritise a long-term reduction in emissions: the 2050 target over the 2020 or 2030 ones. Only then, could it truly claim to be the “greenest government ever”.

David Merlin-Jones is a Research Fellow at the independent think tank Civitas. He specialises in economics, energy and British industry

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