The Commission announced industrial plants, expected to comply with the European Union Emissions Trading System (EU ETS), will get 6% fewer allowances than thought during 2013, increasing to 18% fewer allowances in 2020.
While some cutbacks were anticipated towards 2020, the cutbacks are an unexpected development and could cost UK Paper Mills around £30m ($47m).
David Workman, director general, CPI, said the mills were already facing a multi-million pound bill to cover the shortfall in allocations but this new cutback increases that cost substantially.
“Europe and the UK need to wake up and realize we operate in a global economy. Once again the Government shows how little it understands the manufacturing business,” he said.
“Only last week, DECC figures revealed UK gas costs are around three times higher than in America and electricity prices are around twice as expensive.
According to Workman, the original allocation proposals for the third phase of EU ETS was set by a rigorous process that assumed all sites could produce at the efficiency level set by the top performing 5% in the EU.
Under these proposals, 95% of sites would have been short of allowances anyway – costing UK Paper Mills around £125m ($197m). By comparison, if the allocation for 2012 (the final year of the second phase of EU ETS) had been calculated using these proposals, UK Paper Mills would have seen a reduction of 35% in the allowances received.
He added the new EU ETS costs are cumulative in impact and only imposed on European industry, ‘further damaging’ the competitive position of paper manufacturers in a ‘fiercely competitive’ global market.
“These new costs apply to product manufactured since the start of the year – product long sold to customers,” he said.
“Even if it were possible to pass these costs through to customers without losing them, it can’t be done retrospectively.”
Workman recently wrote to the Chancellor highlighting the competitive damage arising from the UK only Carbon Price Floor (CPF).
“A few days later our members are hit by a new set of extra costs – it beggars belief and questions any commitment to grow UK manufacturing,” he said.
Need for balance
“The simple use of the ‘stick’ of higher costs to drive energy efficiency needs to be balanced with the ‘carrot’ of more support.
“We call on the UK Government and DECC to offer support for investments to drive energy efficiency and innovation, as well as redoubling efforts to place carbon policies in an international context.
“The policy of driving up UK energy costs, irrespective of damage to our industrial base, must be abandoned.”
Workman added a fundamental aspect of EU ETS is an acceptance that Energy Intensive Industries (EIIs) cannot remain globally competitive if it is forced to pay for carbon emissions when its competitors face no similar cost.
“Sectors at risk of ‘Carbon Leakage’ are given free allocations to reflect this commercial reality and avoid the folly of driving production out of Europe and replacing indigenous production with imported products from areas with no carbon cost,” he said.
“Any suggestion that EU ETS is not already impacting on the cost of manufacturing in Europe needs to be corrected and any suggestions that carbon leakage status be removed should be robustly challenged.”