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Greenprint for a low carbon industrial strategy

Greenprint for a low carbon industrial strategy

The “perfect storm” hitting the steel industry has cost up to 10,000 jobs in the North East alone, directly or as consequence of steel plant closures. The Chancellor’s Spending Review on 25 November is likely to make matters worse, with expected staffing and research budgets cut by 25% to 40% at the unprotected business department in the Chancellor’s sights. At such a time, government should be investing to secure and develop our foundation industries. The steel crisis is symptomatic of a wider concern: we are a modern industrial economy without a modern industrial strategy.

Everything that unions and industry has asked government for since the steel crisis hit requires additional and sustained public support for energy intensive industries – combining transitional State Aid package to help energy intensive industries through to a low carbon economy, with investment in the breakthrough low carbon technologies they need, like CCS, until they become commercially available.

The two fundamentals industry faces are energy costs and investment in research and development.

Energy costs

UK Steel reckons that industrial energy prices in the UK are more than 50% above other major EU economies:

 

Unions and industry have welcomed the government’s compensation package to offset the cost of energy and climate change policies. The package is worth £60m a year, rising to £430m by 2020. But it excludes whole sectors like ceramics, cement and glass, and gas-intensive industries like ceramics.

David Cameron pledged that “we’ll refund the energy-intensive industries for the full amount of the policy cost they face as soon we get the state aid decision from Brussels.” Fine words, but there are 5,100 energy intensive manufacturers in the UK, of which just 53 firms currently qualify for relief, including 13 of the UK’s 650 steel businesses. It’s a pale shadow of the support provided by Germany, France and Italy.

Meanwhile, the British Ceramic Confederation has cautioned government to take an industry-wide approach to measures to support the steel industry: for example, preferential emissions allowances  for steelmakers may disadvantage other sectors that have already invested in less carbon-intensive processes. Clearly, the whole compensation scheme needs recalibrating via consultation  to put our industries on a level playing field with our leading competitors.

Research and development

Cameron says he will “work with the industry to ensure it steps up investment in the low carbon R&D and deployment that will truly secure its long term future, creating the green, well-paid jobs our communities need.” He is presumably referring to the joint initiative between industry-BIS/DECC and trade unions on the 2050 roadmaps to decarbonise our heavy industries.

Yet the UK’s public spending on science is already appallingly low by international standards:

As the TUC’s report, Green Innovation, showed, the UK still has much lower levels of publicly funded R&D in the energy sector. The long term policy certainty demanded of government stands in sharp contrast to the Chancellor’s short term plan to reach a budget surplus in 2020, seemingly at any cost.

So for a real march of the makers, here are five manufacturing strategy calls for the Chancellor’s Spending Review on 25 November:

  • Establish a compensation package for energy intensive industries based on consultations with industry and trade unions, that is in line with best practice among our EU competitors; boost the fund so that no sectors are excluded; and guarantee it for at least 10 years.
  • Establish, with the support of the Green Investment Bank, a low carbon industrial technology fund. The net present value of the investment required ranges from £6bn to £16bn.
  • Commit to supporting investment in carbon capture and storage networks for power and industry in Yorkshire, Teesside and Peterhead, Scotland.
  • Deliver on steel crisis commitments made in recent days: tackle China’s steel dumping, to strengthen UK procurement of steel and other key industrial inputs, and bring business rates down to levels paid by EU competitors.
  • Intervene in the steel industry: Community has called on the government to “step in to temporarily take control and protect the integrity of the assets with a view to returning them to the private sector at the earliest opportunity.”

The government could take a lead from the Italian government, which in January took temporary control of the loss-making Ilva steel plant and make necessary investments. The Italian government are subject to a complaint from Eurofer, but they have saved 14,000 jobs.

Unions are as concerned about retaining skills as well as jobs, and want the government to provide support for short time working, tied to training and skills. Since the downturn hit in 2008 the UK steel industry has been disadvantaged by the fact that EU competitor companies have been able to access state provisions for short time working. In Austria and Germany steel companies such as Voest Alpine and Thyssen Krupp have been major beneficiaries of short-time working arrangements;and France and the Netherlands have also used short-time working measures to alleviate the pressure on companies to make short-term decisions.

Above all, the government should consult with industry, trade unions and local government to create a task-oriented manufacturing strategy for the UK.

This blog originally appeared on ToUChstone and is cross-posted here with permission.

Work areas: Economy and Industry.

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