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UK's Osborne to offer industry more compensation for green taxes

Source: Reuters - Wed, 4 Dec 2013 04:59 PM
Author: Reuters
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* Extra funds come on top of 400 million already allocated

* Funds are to mitigate climate costs, rising energy bills

* Industry lobbies say measure does not go far enough

By Maytaal Angel

LONDON, Dec 4 (Reuters) - British Chancellor George Osborne is expected to add 100-150 million pounds ($164.1-$246.2 million) to a compensation scheme to shield heavy industry from rising energy bills, responding to claims the sector is crumbling under the weight of green taxes.

Energy costs are high on Britain's political agenda. Most of the focus so far has been on household bills, even though energy-intensive industries (EIIs) such as steel and chemicals firms pay some of the highest bills in Europe.

The government budget update known as the Autumn Statement, set for Thursday, will extend a compensation scheme for energy-intensive industry by another year to 2017, adding extra funds to the roughly 400 million pounds already available.

"We're expecting another year's extension. The rough value of that one would assume to be another 100 million (or) 150 million, but it's not enough for steel companies. They need an investment signal to carry on operating in the UK," said Jeremy Nicholson, director of the Energy Intensive Users Group.

"Government has accepted that price increases caused by carbon taxes would be intolerable for EIIs competing internationally, but there's a limit to what the chancellor can say in one statement," he added.

A treasury spokesman declined to comment.

Recent government data shows UK energy-intensive firms pay about 30 percent more for power bills than their main EU competitors, while British households pay below the EU average.

Industry lobby group UK Steel has produced data to show that climate policies, some of them UK-specific such as the carbon price floor, account for around 20 percent of the bills that steel mills pay.

Industry lobbies say the compensation scheme does not go far enough in levelling the global playing field.

"Our UK manufacturing plants face electricity costs that are as much as 50 percent higher than for our key competitors in France and Germany," said Karl Koehler, chief executive officer of Tata Steel's European operations.

"A substantial part of this disparity is the cost of green levies on UK industry introduced by successive governments over the past decade."

They also say the plight of industry has been sidelined by the political debate over household bills.

The Labour Party has pledged to freeze household energy bills if it returns to power. On Sunday British Prime Minister David Cameron said his government would set out measures to cut bills by an average of 50 pounds a year in the Autumn Statement.

FRONT RUNNING

Tata Steel, which recently announced it would cut up to 500 jobs in Britain, said it would pay almost 30 million pounds this year on UK-only carbon taxes, a figure that will increase by 25 percent next year.

The UK's carbon price floor is set at 4.94 pounds per tonne of emissions this year and will rise to a level that ensures power companies pay 30 pounds per tonne by 2020.

The tax is particularly unpopular, and companies say that the UK is taking the lead even in Europe, where industry generally is struggling to compete globally.

"You have to manufacture things to create real wealth. You'd think this government would have learnt the lessons of the past in terms of putting all their eggs in the basket of financial services," Michael Leahy, general secretary of the Community union, said.

Last month, the International Energy Agency warned that Europe's energy prices will be as much as triple U.S. prices for the next 20 years unless the region can develop domestic supplies and increase efficiency.

The European Commission is analysing the impact of energy prices on member states and is devoting two EU summits to energy and competitiveness early next year. It has also launched 'action plans' for various industries including steel.

"The UK government is clear that decarbonisation should not mean deindustrialisation. There would be no advantage - both for the UK economy and in terms of global emissions reductions - in simply forcing UK businesses to relocate," said a spokesman for the Department of Business, Innovation and Skills.

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