Confederation of Paper Industries Urges UK Government to Reconsider proposal for New Tax on Carbon

"UK-only polices that increase manufacturing costs can only drive investment and jobs to our neighbours and places outside Europe with unconstrained carbon costs." – David Workman, Director General, CPI.

March 21, 2013 - The Confederation of Paper Industries (CPI), the trade association that represents the UK’s Paper-based Industries, is calling on the Government to urgently rethink its proposals to introduce a new tax on carbon. CPI believes the proposed tax will increase the cost of electricity and threaten the competitive position of electro-intensive manufacturing in the UK.

Carbon Price Floor (CPF) works by taxing coal and gas when used to generate electricity — the tax applying both to electricity generators and industrial users. Generators will pass this new cost on in the form of higher bills to customers. However, industrial users have no possibility of passing this increased cost through to customers. Doing so would result in them becoming less competitive compared to manufacturers based outside the UK, who are not exposed to this new tax.

CPF starts at a relatively low level, but annual increases mean it will quickly become a major additional cost. CPI estimates a net increase in electricity costs of 2.4% in 2013, rising to 16.1% in 2020.

The Government has to some extent recognised these issues for energy-intensive installations and is developing a compensation package to offset some of the additional costs arising from the CPF. However, European Commission rules limit this compensation to around 68% of the additional cost, and the UK is developing additional rules to limit compensation to only those most electro-intensive sites suffering the greatest impact on their profitability. Even worse, details of the compensation package are not ready as the new tax starts and the compensation will only be guaranteed for the next two years. This results in serious uncertainty for operators and potential investors.

At a time when major concerns are being raised over the escalating cost of energy and Government is seeking to support Manufacturing Industry, there is no logic to implementing this new tax beyond a cynical ploy to raise more revenue for the Treasury, irrespective of the consequences of the policy. Accordingly, CPI calls for:

  • An early re-assessment of the CPF escalator - GBP 30 by 2020 and GBP 70 by 2030 is unaffordable for customers.
  • The extension of the compensation package to cover as many industrial sites as possible and for compensation to be confirmed for the full period of the CPF.
  • A simple exemption of on-site Combined Heat and Power (CHP) from CPF — both to incentivise deployment of this carbon saving technology and avoid complex administration to return tax to operators.
  • Using carbon related taxation for a major programme of industrial energy efficiency.
  • A renewed push for climate change policies to be set on a global basis to avoid destroying UK competitiveness.

David Workman, CPI Director General said, "The imposition of these additional and quickly increasing costs on UK Industry is a massive blow to competitiveness. Paper manufacturing is both capital and energy intensive — the Government policy to drive up long term energy costs, irrespective of what happens elsewhere in the world, can only be seen by investors as signalling a lack of interest in supporting UK manufacturing.

“Climate Change polices must be delivered on a global basis and certainly across the whole of the European Union. UK-only polices that increase manufacturing costs can only drive investment and jobs to our neighbours and places outside Europe with unconstrained carbon costs. It makes no sense to destroy UK Industry and then simply import manufactured goods with embedded carbon.”

In a statement, CPI noted, "As a UK-only tax, CPF will simply add to the cost of manufacturing in the UK and (because there is no link to the number of carbon permits) it will have no overall impact on the release of carbon dioxide, as the overall effect will be to make it cheaper to release carbon dioxide elsewhere in the EU. While the scheme is intended to encourage the development of low-carbon energy generation, for existing companies (with no opportunity to avoid using gas or grid electricity) then CPF is simply a new and quickly increasing production tax, with limited opportunity to pass through costs to customers without losing market to imports."

The UK has 52 paper mills producing approximately 4.5 million tonnes of paper and board annually (approximately 10 million tonnes of paper and board are used annually in the UK), according to CPI.

UK paper mills have reduced the total energy required to make a tonne of product by 34% (much of this saving from the deployment of CHP) and now emits 42% (or 1.6 million tonnes) less fossil carbon dioxide each year (1990 compared to 2010, figures quoted from audited Climate Change Agreement returns to Government). In 2012, the industry saw increased exports and reduced imports — a welcome change to historic trends, CPI concluded.