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Matthew Sinclair: George Osborne can't let energy intensive industry down at the Autumn Statement

Earlier this week, over five hundred workers at the Lynemouth aluminium smelter found out that they were losing their jobs.  Their employer, Rio Tinto Alcan, said that "the smelter is no longer a sustainable business because its energy costs are increasing significantly, due largely to emerging legislation".  If the Government is serious about sustained economic growth then George Osborne needs to ensure that bad climate policy doesn't dump many more people out of work.

The jobs lost at existing plants that close will only be a fraction of the total put out of work by climate policy driving up energy costs.  Closing a significant facility and giving up on the established networks of suppliers, skilled employees and customers that have often built up around it is a big step that most companies are reluctant to take.  It often makes many more people unemployed in the wider economy than the headline number that work there suggests as a result.  And companies will be far more willing to redirect new investment, as there aren't the same sunk costs.  Tata Steel have said that the carbon floor price puts their £1.2 billion programme of investment in the UK at risk.

In a new report out today we've set out why the carbon floor price creates particular problems for energy intensive industry.  The largest energy consumers already pay up to 10 to 25 per cent more for energy here in Britain than their rivals in Germany, and 60 to 75 per cent more than in France.   The carbon floor price alone will add another 10 per cent to their energy costs by 2020.

At the same time, it actually reduces costs for their competitors.  An artificially high carbon price here depresses the price in other European countries.  That means they'll emit more.  As we haven't altered the cap in the European Union's cap and trade scheme, the carbon floor price won't cut the amount emitted by a kilo.  It will actually increase emissions as that cap stays the same and some of the industrial capacity driven out of Britain by higher energy costs relocates outside of the EU entirely.

There is something incredibly masochistic about putting in place a policy that ensures Britain will bear more of the burden of meeting the overall European target for emissions cuts.  The idea is that a more stable carbon price will encourage investment in low carbon generation.  But while EDF Energy will enjoy the windfall profit there are still major obstacles - particularly construction risk - in the way of a big expansion in nuclear capacity.

The tax should be scrapped.  But it looks like instead the Government are planning to offer more generous support for energy intensive industries - along the lines of the rebates they get in Germany.  The mitigation they announced at the Budget when the carbon floor price was introduced was clearly inadequate so they need to do better.

Any growth strategy won't be credible if it is combined with climate policies crippling major industries.


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