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UK Government's Energy Policy

I would like first to make a couple of comments on feed-in tariffs, and then I shall move on to speak about the effect of the carbon floor price on our industry in Wales. I have in my constituency the former mining site, Cynheidre, a brownfield site with excellent grid connections. We have an application in for a 3 MW solar panel installation. That is an absolutely ideal use of that piece of land, which is not particularly accessible because it is reached by small lanes, so building an industry that would require a huge number of lorries going to and fro would not be suitable. It has a grid connection and it is a brownfield site. The local residents would welcome the installation of solar panels, which would generate electricity for some 800 houses. All that has been put in jeopardy by the decision of the Secretary of State for Energy and Climate Change to refer the matter to consultation. Furthermore, there is a similar plan for an installation in Ffos Las, near the race course, which would use land that would probably struggle to attract anything else. Again, that is likely to be very acceptable to the local community. It seems a terrible shame that an excellent scheme, which offers opportunities for our own solar panel industry and which needs certainty of purchase to up its production, will be jeopardised and perhaps thrown out for the most spurious of reasons. There seems to be a complete misunderstanding of the scheme’s self-sufficiency in the long term, and how it is not a question of robbing Peter to pay Paul. It is quite possible for such schemes to go ahead simultaneously with those for individual householders. I turn now to the significant impact that the carbon floor is likely to have on heavy industry, such as the Trostre steelworks in my constituency. I know that similar steelworks and energy-intensive industries throughout Wales are equally concerned. The Conservative manifesto pledged to reform the climate change levy to introduce a carbon floor price, but it made that look like a reform that could be achieved without spending Government money and without raising household bills, thanks to a system of bill rebates. However, on entering government, it was quickly accepted that the bill rebates included in the manifesto commitment were unworkable. It was also realised that the UK could not unilaterally put a floor under the European carbon market. Instead, a policy that effectively increases the cost of carbon for UK electricity generators was developed. The stated intention of the reform in the manifesto was to provide a carbon price floor, or at least a stability mechanism, so that the total cost of carbon for generators could be more certain. In practice, the consultation simply proposed the introduction of another tax, this time on the fuel used by generators. The tax lever could be used to stabilise the cost of carbon, increasing the tax when the price of a carbon allowance was low and vice versa. However, the consultation document did not suggest any formal link between the two. As a result, investors would still face uncertainty over the cost of carbon, this time also consisting of political uncertainty over the level of the tax. European legislation prevents the taxation of the generators directly. To get around that problem, the proposal intends to tax the fuels used by electricity generators. Different fuels will be subject to different rates of tax, with the tax rate based on the carbon content of each fuel type. The level of tax could be revised periodically in different ways, as laid out in the consultation, but the general idea is that the revised climate change levy on generators’ fuel could be raised incrementally to create an effective carbon price for generators that is higher than the one in the European carbon market alone, which could be very serious for some energy-intensive users. We understand that sometimes we have carbon leakage, where when we impose certain conditions, manufacturers choose to go to parts of the world where they can get away with less environmentally stringent conditions. They can therefore continue to produce the same amount of emissions, while we have lost that industry. Our worry is that we are putting ourselves not only in an uncompetitive position vis-à-vis the cheap countries in the world, but at a disadvantage in respect of our European competitors. That will substantially disadvantage some of the energy-intensive industries. In its response to the consultation, which closed recently, Tata made those points clearly. The tax will impose an additional cost on energy-intensive industries, and it will affect not only the plant in Trostre in Llanelli, but the neighbouring blast furnace in Port Talbot. In the consultation document, there is no proper quantification of the impact of the carbon floor price on energy-intensive industries. In fact, Tata has found it rather insulting that the consultation makes unsubstantiated comments about passing on the cost to the consumer. It knows well that in a highly competitive global market, that is simply not an option. If Tata compared itself to other firms across Europe, it would find that other European operators will not be subject to the same type of tax. Its response to the consultation states: ““Other European operators are likely to remain operating under an ‘abatement at least cost’ regime, therefore exposing Tata Steel UK to a different cost pressure and impacting on our ability to compete even inside the single market.”” It pointed out that the purpose of the tax was to encourage low-carbon generation, but if there were to be a significant gap—perhaps 10, 15 or 20 years—between the implementation of the tax and the coming on stream of low-carbon types of generation, the industry would be very severely penalised in the medium term. It is deeply concerned that the carbon floor price will not deliver the desired investment growth. In other words, we are facing a situation where companies such as Tata Steel UK and other similar manufacturers could make long-term investment decisions based on what they see in the carbon floor price. They could turn away from the UK and decide that instead of building a new blast furnace in Wales, they will take those plans elsewhere. In its response to the consultation, Tata Steel UK states that the carbon floor price will be ““increasing the longer-term risk to the sustainability of our UK operations.””. That is a very stark message and I would like the Minister to take that back to his colleagues in the Department of Energy and Climate Change and point out that we need a proper understanding and assessment of what the impact will be on energy intensive industries such as the steel industry. At the moment, given what we understand from the consultation document, we are talking about tens of millions of pounds of incremental costs to Tata Steel UK. Those costs are not faced by its European competitors, let alone by its global competitors. I ask the Minister to take those comments on board and have the matter looked at carefully. We are just beginning to benefit a little from a weaker pound, and we have seen fantastic investment by some manufacturers in recent years. We now face a situation that could kill that stone dead, and we could lose excellent industries such as Tata Steel in my constituency. It has continued throughout the recession to produce a much-used product—the tin can—that has been popular throughout the recession. It has managed to keep going in a productive and competitive way, and we must ensure that we do not drive it elsewhere. I hope that the Minister will take those comments on board and I shall give someone else the opportunity to speak.