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North Eastern Industry to Be Decimated – and For What?

The government’s green taxes will spell the end for Britain’s chemical industry, which employs 200,000 directly, an additional 400,000 indirectly, and accounts for 15% of UK exports. The sector, much of which is found in North East England, will be the victim of the race to cut emissions by 34% from 1990 levels by 2020: more than any other country’s target. Moreover, this approach by the ‘greenest government ever’, will actually undermine the UK’s ability to reduce its greenhouse gas (GHG) emissions and will smother the emerging low-carbon economy at birth.

Chain Reactions, published by independent think-tank Civitas, draws on the example of the economically vital but energy-intensive chemical industry because, while it is disproportionately affected by energy bills, it also produces a myriad of environmentally-beneficial products such as catalysts and insulation. David Merlin-Jones, author of Chain Reactions, argues that the best 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.

Unrealistic expectations

Britain is making the deepest emission reductions of any industrialised nation. The 2020 34% target is 14% higher than that of any other EU nation. The latest carbon budget, set last month, now commits the UK to emission targets beyond 2020, the first country in the world to do so. To meet these overambitious targets, high unilateral costs are being imposed, such as the new carbon price floor. Taking all green levies into account, the average energy-intensive company’s energy bill is set to rise to £17.5m by 2020 from the current £3m.

The response to the price hike will be industrial emigration. Companies, especially multinationals, will leave the UK to settle in countries with lower energy prices and fewer punitive costs. Those who cannot afford to relocate will likely fold. In the long-term, foreign investment will also dry up, leaving the UK an industrial backwater.

Brendan Barber, General Secretary of the TUC, said in his foreword to Chain Reactions:

It is vital at this crucial moment in energy policy making, that government strikes the right balance between its climate change and industrial polices. If we get this wrong, then the industrial damage may be irreparable. (p. xi)

Regional collapse

The chemical industry is primarily located in Northern England, and has important clusters around Middlesbrough, Newcastle, and Yorkshire and the Humber. The Government has proclaimed the need to support regional growth, but appears to side-line this in favour of appearing green. It fails to understand that indirect industries are reliant on the chemical sector, and if this goes, so will they. In the Yorkshire and Humber area alone, 24,000 are directly employed by chemical firms, but indirect jobs will bring this total to nearer 75,000. Nationally, ten jobs are reliant on every single directly employed general chemicals worker.

David Merlin-Jones said:

If energy price rises continue, it will lead to concentrated mass unemployment. The politicians designing these policies down in Westminster appear barely aware of British manufacturing. It does not seem to concern them that their desire to be ‘the greenest government ever’ will have a real impact on countless livelihoods elsewhere in the country.

The North East of England Process Industry Cluster is an important regional organisation, and its Chief Executive, Dr Stan Higgins revealed:

Anything approaching £30 per tonne of CO2 will be prohibitive to UK chemical production.(p. 32)

Shockingly, the carbon price floor, announced in the March 2011 Budget, looks set to push the price to exactly £30/tCO2 by 2020. This is without even taking the many other costs like the Renewables Obligation into account.

The decline has already begun

Tata’s announcement last month, that it is to close part of its Scunthorpe plant, with job losses up to 1,500, shows that industry is not bluffing when calling the green costs too much. Like Tata, 70% of the firms in the UK chemical industry’s trade body are foreign-owned. They are the most liable to move production overseas and this has already begun. One company used its British workforce to construct a new plant in Portugal before then laying them off.

The UK is increasingly viewed internationally as a difficult place to do business and foreign investment in British chemical plants is already declining. If costs rise further, as is planned, more multinationals will close UK plants and move production to more welcoming countries. Even Germany, which is similarly enthusiastic about reducing emissions, avoids piling unmanageable costs on industry.

For every tonne of CO2 emitted, the chemical sector saves another two

The government is wrong to think the low-carbon economy needs creating from scratch – it already exists within the chemical sector. The industry manufactures the products and innovations other industries and consumers need to reduce their emissions. On average, this means the chemical industry has a downstream emissions saving ratio of 2:1 and for products like insulation, this can rise to 233:1.

While energy-intensive, it is clear the sector is environmentally beneficial to the UK. By only assessing emissions outputs, the government is yet to realise this. If policies began to foster rather than penalise the chemical industry, the emissions saving ratio would double, to 4:1, benefitting the economy, and the environment.

Trying to create votes rather than jobs

Discussing the unilateral price rises, Energy Secretary Chris Huhne said:

It is necessary for our sheer economic self-interest precisely because it will send out clearer carbon price signals and allows us to develop more rapidly across all those low carbon sectors. (p. 37)

This is untrue – 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% CO2 emissions reduction by 2050, let alone the huge leap of an extra 40% cut in ten years from 2020-30.

David Merlin-Jones said:

At this rate, when the present government is long gone, its binding targets will still be decimating the UK economy.

The solution: comparative, competitive costs

The most damaging green policies are not yet entrenched in law, and there is no reason they cannot be dropped so that the UK can pursue a new policy of maintaining competitive energy costs with Europe. The most effective way to reduce our emissions is create a positive business environment which will allow the nascent low-carbon economy to thrive. This would allow the government to satisfy its green needs without gambling away thousands of jobs. Green policies should not be driven to the point where they undermine actual emission reductions.

The government must recognise there is more to the low-carbon economy than they think, and it will not rise like a phoenix from the ashes of energy-intensive sectors.

Contact details:

David Merlin-Jones, Research Fellow on 020 77996677

Civitas on 020 77996677

Notes for Editors

i. David Merlin-Jones is a research fellow at the independent think tank Civitas. He specialises in economics, energy and British manufacturing.

ii. Brendan Barber, author of the foreword to the report, is General Secretary of the TUC.

iii. Chain Reactions: How the Chemical Industry Can Shrink Our Carbon Footprint (RRP: £6.00) is available from Civitas by calling 020 77996677. It is also available from Amazon, and on Amazon Kindle (priced £2.99).

iii. Civitas is an independent social policy think tank. It has no links to any political party and its research programme receives no state funding.

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