Contribution
My Lords, I thank the Minister for introducing this statutory instrument. He generously banked the good will between the noble Earl, Lord Russell, myself and himself yesterday, and I assure him that he will have no need to draw down on that, because I am sure he will disassociate himself from his colleagues in another place when it comes to this scheme.
For once, this is a policy that is solely conceived by the Labour Government. It is a straightforward decision by DESNZ to increase carbon taxes on major industrial users which depend on hydrocarbons, particularly gas in the UK industrial market. Many industries have no choice but to use gas, and no alternative firm sources of supply; indeed, they face heavy dependence on high electricity prices to stay in business.
The Minister’s speech may sound technical, and it is true that 104 pages covering the order and the Explanatory Memorandum take some digesting, but a reread shows exactly what this statutory instrument does. The good news is that the noble Lord, Lord Lemos, sitting beside the Minister, is a good Lewisham man and he had no difficulty understanding every word of the particular trading scheme order that is before us. He will be able to help the Minister; I see he is already doing so.
What does this order do? It reduces the supply of free allowances—the key point that was made by the Minister—and thus it increases the carbon tax cost to many of the UK’s major energy industries in a highly competitive global market. These free allowances have been the mechanisms used to protect businesses such as ceramics, cement and steel from being undercut by cheaper imported products from countries that do not charge carbon taxes.
Take the very real example, considered and referred to by the noble Earl, Lord Russell, which was considered in another place yesterday by Gareth Snell, the Labour MP. He focused on the ceramics industry and said that this sector
“is very difficult to decarbonise”
but that it is
“producing things that are integral to the Government’s missions, whether that be house bricks for our house building programme or advanced ceramics to support our defence industry … because we cannot make steel in this country without ceramics … We are still at huge risk of carbon leakage. We work in an unfair market at the moment, not least because of the way in which non-market economy status countries import into this country … the ceramics sector is desperately trying to do all that it can to reduce its output of greenhouse gases, but that is really difficult when it has to run a kiln at several hundred degrees for many hours to do the bisque and the glaze firing, and run refractories for 12 to 14 hours at 1,500°C. Electrification is not available to many of those businesses at the moment, because the capital to invest … is simply not available; the profit margins on their products do not allow for it … We are wedded to gas for the foreseeable future”.
The sector fears that,
“as we move at pace to meet some of the decarbonisation agendas and reduce the overall cap through the emissions trading scheme, that will mean that the free allowances also have to come down, which will push the ceramics sector into having to buy many more free allowances”,—[Official Report, Commons, Delegated Legislation Committee, 27/1/26; cols. 9-10.]
leading to higher costs.
Even in the Government’s net-zero nirvana of green power plants, gas is the dispatchable power in the system. There is no other choice; nothing else will keep the lights on when the wind does not blow and the sun does not shine. This SI needlessly imposes a tax that inflates the price of gas to the industry and then passes the additional cost through to the consumer when they have no other choice.
Everybody wants clean rivers, clean energy and an improved environment with a clear commitment to tackle global warming. But these objectives should never purposely lead to deindustrialising the country, negating growth and increasing unemployment in our high labour-intensive, high energy-consuming industries on the altar of net-zero zealotry.
We have among the highest power prices in the world and today we are putting them up again. If you drain free allowances out of the system, energy costs rise yet more in comparison with international competitors. Not surprisingly, international companies will relocate abroad in more competitive markets and accelerate deindustrialisation in the petrochemicals sector, the steel sector, ceramics and refineries. Sadly, this may also apply to data centres in the future, with fewer choosing the UK for the very same reasons.