Sacrificing Jobs For No Green Benefit: Huhne’s Blinkered and Dogmatic Policies Are Self-Contradictory

The present government’s approach to climate-change policies will actually undermine the UK’s ability to reduce its greenhouse gas (GHG) emissions. By pricing energy-intensive industries out of the UK via green levies and taxes, the ‘greenest government ever’ is actually smothering the emerging low-carbon economy at birth. The new plans for a 60% reduction in emissions by 2030 are too much, too soon.

Chain Reactions, a report released next week by independent think-tank Civitas, draws on the example of the economically vital but energy-intensive chemical industry: it produces a myriad of environmentally-beneficial products such as catalysts and insulation. Author David Merlin-Jones argues 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.

Writing in the foreword, Brendan Barber, General Secretary of the TUC, warns:

It is vital at this crucial moment in energy policy making, that government strikes the right balance between its climate change and industrial polices. (p. xi)

£60bn and 600,000 jobs up in smoke

The industry estimates this is the loss of turnover and employment that will be felt by the chemical industry’s demise if the draconian green policies of Chris Huhne are continued. Most of this will be felt in the North East of England. Huhne is intent on making the UK the most expensive place to run an energy-intensive industry, in the vain hope this will reduce UK carbon emissions. This is despite the Government’s Growth Review making economic and regional growth a priority.

The real issue is that so many products are reliant on basic chemicals, from soaps to clothes to solar panels, that if the core chemical industry emigrates, so will these downstream ones, resulting in mass unemployment and an increase in consumer goods prices. Downstream green industries will also emigrate.

Emissions produced are only one side of the equation

The government is not interested in how much carbon is saved through chemical production, and therefore misunderstands what the low-carbon economy is. It has been estimated that, on average, for every tonne of CO2 used in the chemicals industry, two are saved down the line. This ratio could double to 4:1, provided that the government policy fostered rather than punished the sector.

However, short-termist green policies have failed to take account of the long-term emission reductions offered by the chemicals industry. Insulating materials for instance have an emissions saving ratio of 233:1. One company, PYReco, offered the quango WRAP a way to reduce the UK’s carbon emissions by 700,000 tonnes through reclaiming tyres but was told:

‘Don’t say we have a problem, we have not got a problem with tyres – we can burn them in cement kilns.’ (p. 50)

As WRAP could not fit the innovation into its narrow view of recycling, it rejected it in favour of creating more emissions through tyre burning.

Chris Huhne wants Britain to be the global champion of the environment, but if the chemical industry collapses, the UK will lose the real leadership of pioneering and developing green technologies and products. David Merlin-Jones said:

There’s no point trying to rush emission cuts by decimating the very industry we depend on to meet the much harder target of 80% by 2050. How are we supposed to build wind turbines, if the government has priced companies producing them out of the UK?

Game over at £30/tCO2

One industry insider, Stan Higgins revealed:

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

The 2011 Budget has promised a carbon price floor and current plans look set to push the price to £30/tCO2 by 2020. This is without even taking the many other costs like the Renewables Obligation into account. Taking all of these levies into account, the average energy-intensive company’s energy bill is set to rise to £17.5m by 2020 from £3m now.

Pushing energy costs to the highest in the world means the demise of the chemical industry is now a case of ‘when’, not ‘if’.

The decline has already begun

70% of the firms in the UK chemical industry’s trade body are foreign-owned. They are 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. Huhne’s way is clearly not the only way.

Wrong target

Britain already has the highest emission targets of any industrialised nation – a 34% reduction on 1990 levels by 2020, 14% higher than the EU’s goal. Huhne’s new plans for a 60% target take this even further. According to Huhne:

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% reduction by 2050, let alone the huge leap of an extra 40% cut in ten years from 2020-30.

Author 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 Chris Huhne plan for growth: send it all abroad

If industry leaves the UK, it will settle where costs are cheapest. Countries like China, Russia or Saudi Arabia offer artificially low energy costs and few emission regulations if any. This would likely lead to carbon leakage as companies can pollute more there than in the UK. By attempting to reduce British emissions too fast, global emissions will rise. David Merlin-Jones commented:

All that seems to matter to the government is that the UK reduces its emissions. What happens elsewhere is not a concern for them. However, leaving developing countries to wallow in pollution is unacceptable. They need to remember carbon emissions are a global, not national challenge.

The solution: a balanced approach

All is not yet lost. Huhne’s 60% plans are not yet enshrined in law, nor is the carbon price floor. There is no reason Britain can’t maintain parity with European energy costs. Image is not everything and green policies should not be driven to the point where they undermine actual emission reduction. David Merlin-Jones said:

It’s not an either/or situation: there is no reason Britain can’t support industry and reduce its carbon emissions. If energy costs are kept competitive, the UK will create the fertile environment required to produce a low-carbon industrial renaissance.

As Brendan Barber says:

If we get this balance right, then the UK stands to be world leader in low-carbon goods and services that the chemicals sectors is well placed to deliver. (p. xi)

The government must recognise that 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 / 07949 811032 and david.merlin-jones@civitas.org.uk

Civitas on 020 77996677

Notes for Editors

i. Chain Reactions: How the Chemical Industry Can Shrink Our Carbon Footprint by Civitas Research Fellow David Merlin-Jones will be released next week. Pre-publication press copies are available on request. Please call 020 77996677 or email david.merlin-jones@civitas.org.uk.

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

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.