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Mr. Grieve: Is it not the case that, in France, there is no belief in climate change and global warming at an official level?
Mr. Loughton: That is another story, and a much higher proportion of electricity comes from nuclear power in France--something that Labour Members would not countenance.
There is a licence to pollute more in the case of greenhouse gases for the countries to which I referred because they do not have the incentive to decrease. Yet we are being saddled with one of the heaviest decreases. We support that, but it should be acknowledged that the UK had one of the best records of decreasing carbon dioxide emissions between 1990 and 1995, under the Conservative Government. In many cases, therefore, our European partners have far greater leeway than we do. Nevertheless, the Government expect British industry to bear the full brunt, the effect of which on industry will be quite catastrophic.
As for end users, CO2 emissions from industry comprise about 27 per cent. of the overall target, whereas domestic emissions are 28 per cent., and road transport 22 per cent. However, by source, iron, steel and other industrial combustion and production processes account for only 17 per cent. of CO 2 emissions, as against power stations--which are by far the largest source of such emissions--at 28 per cent.
As we have heard, the Department of Trade and Industry is having to update its 10-year-old figures on energy use by United Kingdom industry sector to identify which firms and plant are energy intensive. Therefore, the Government are largely struggling in the dark on which sectors will be hit hardest--yet, they want to bulldoze ahead with their proposals.
The energy tax has universally been given the cold shoulder by industry. The head of the Confederation of British Industry has said:
The most damning response has perhaps come from the British iron and steel industry, which exports 50 per cent. of its production to 200 different countries around the world. It is a fiercely competitive business. The chairman of British Steel said:
Not only the iron and steel industries but the chemicals industry will be hit by the tax. That industry will pay £175 million in tax, but receive only £25 million in national insurance rebate. Paper will pay £60 million, but get back £2.5 million. Cement will pay £40 million, to get back £600,000. Aluminium will pay £30 million, to get back £1.6 million--and so it goes, on and on. So much for revenue neutrality in any of those sectors.
Water will be another victim. It will spend £36 million, but receive back only £3 million in national insurance rebate. Surely that must impact on the industry's water quality improvement schemes.
The tax's effect on the steel industry will be ironic, as the industry has been one of the greatest proponents of improving energy efficiency. In the past 25 years, the amount of energy needed to produce a tonne of steel has decreased by 40 per cent., and the amount of CO 2 involved in the process has been halved. British Steel has been a pioneer in producing lighter steels that are most cost-effective and efficient in car production, so that production requires less energy. British Steel, with other intensive users, has invested greatly in energy efficiency.
Other European Union countries ensure a zero net effect for their steel industry. In Germany, the energy tax is equivalent to only 4p per tonne of steel. The Government's proposals, implemented at the full rate, will be the equivalent of £6.70 per tonne of steel--whereas the average in Europe is only 40p.
After closures--because of sheer competitiveness and foreign competition--in the steel industry, British Steel was a big contributor in recycling jobs into new industries. With the tax, British Steel will of course lose out to foreign competitors. Even more damaging, however, is the fact that 40 per cent. of the world's steel is made in countries that are not covered by the Kyoto agreements.
Last year, for the first time, Europe became a net importer of steel. Last year, steel imports from non-Kyoto-covered countries increased by 113 per cent, and such imports into the United Kingdom alone increased by 60 per cent.
The Government do not seem to realise that, as of the end of June, 84 countries had signed up to Kyoto. However, the figure does not include countries such as South Korea, India, Turkey, South Africa, Hungary, Singapore or Taiwan, many of which have burgeoning iron and steel industries that are simply slavering at the lips to pick up business that will be lost by the United Kingdom if the Government's proposed energy tax is levied. China may, on the face of it, have signed up to Kyoto, but how many people here genuinely believe that it will stick to the strict limits? There will be a big redistribution of funds within the steel industry, from Wales and the north to London and the south-east, where the service industry jobs are.
My right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) said what a highly global industry the aluminium industry was, and described how it had introduced significant measures to reduce energy use since 1990.
Dr. Brian Iddon (Bolton, South-East):
Has the hon. Gentleman carried out an analysis of the effects of the tax proposed by Lord Marshall compared with those of a carbon tax? How would a carbon tax damage the steel industry less? That is what he claims, and his entire speech is based on such comparisons, so may we have the analysis, please?
Mr. Loughton:
The iron and steel industry, like many other industries, has set up alternative forms of fuel, such as combined heat and power, and renewables. Under the blanket measures proposed, it would have no capacity to diversify into more environmentally friendly forms of energy. The hon. Gentleman, who served on the same Committee as me, knows that perfectly well.
I shall not go into detail about the aluminium industry. The tax will also affect material producers and the sugar industry, in particular British Sugar, which has been in the forefront of promoting investment in combined heat and power, on which it has spent a great deal of money. It now faces unfair competition--for example, from Germany, which has a 100 per cent. rebate for its domestic industry.
Retailing, too, will be affected. The British Retail Consortium said:
I shall not go into the details of the report by the Select Committee on Trade and Industry, because my hon. Friend the Member for Banbury (Mr. Baldry) has told us about it in great detail.
The liquid petroleum gas industry is highly environmentally friendly, so it is ironic that the tax will worsen environmental conditions in the United Kingdom by encouraging LPG users to switch to more polluting, less efficient fuels. Calor estimates that the price of LPG will have to rise by 10 to 15 per cent., whereas hydrocarbon oils will not be affected because they are already subject to excise duty.
That is ironic because, in the Budget, the Government rightly made much play of reducing excise duty on road fuel gases by 29 per cent., recognising that they produce
less carbon dioxide, benzene, and sulphur dioxide, and fewer particulates. Yet now the industry concerned will be clobbered by the blunt instrument of the energy tax.
I could also talk about renewables, but my hon. Friends have already mentioned those.
The energy tax represents an enormous missed opportunity, especially as it means that we shall not be forging ahead with emission permit trading systems, as Lord Marshall suggested in his report. Such a system would exert much stricter control over CO 2 emissions, with less cost to industry. The United States, Canada, Norway and Australia already have such systems. In the Sydney futures market, a facility has been set up for trading pollution emission permits, and that suggests enormous opportunities for the City of London, which could take on that challenge and set up such a system rapidly.
BP Amoco has its own internal emissions trading system, and PowerGen and British Gas have endorsed the idea. Trading permits between countries would go some way towards reducing the likelihood of distortions emerging in national economies as emissions are reduced, and costs and patterns of energy use change.
The Marshall report highlights the attractions of the scheme but, for some reason, the Government do not seem to want to take it on. Ironically, however, they have recognised the scheme's attractions by backing plans being drawn up by 24 large companies and six business organisations for an emissions trading system.
The Government have set up a steering committee under Rodney Chase, deputy chief executive of BP Amoco, which will report in October, but the proposals contain no agreement about whether companies taking part in the schemes will still face the full rigours of the energy tax. The Government's inaction represents an amazing lost opportunity to arrange the voluntary agreements that have been set up in the chemical and steel industries, and by energy users.
The Government compound that lost opportunity by sticking with the gas moratorium, even though the Under-Secretary of State for the Environment, Transport and the Regions, the hon. Member for Mansfield (Mr. Meale) has admitted that the switch to gas and nuclear made a major contribution to the fall in CO 2 emissions in the 1980s and 1990s.
It is also a scandal that a Government who have talked about hypothecation--as the Secretary of State for the Environment, Transport and the Regions has done so proudly--should propose to recycle into energy efficiency programmes only £50 million, or less than 4 per cent. of the revenues from the tax. The amount recycled is much greater on the continent: for example, about 20 per cent. of the take from Austria's energy tax is recycled. The Under-Secretary told the Select Committee on Environmental Audit that the amount was as much as could be "squeezed" out the Treasury.
The recycled tax revenue could be put to so many uses, such as promoting home energy grants and tackling the problem of fuel poverty. It could also be used for house energy efficiency schemes, renewable subsidies, or even for handing our energy-saving light bulbs. All those represent more missed opportunities. Above all, however, the Government have missed an opportunity to introduce a genuine carbon tax and establish the UK at the forefront of the establishment of a new permit trading system.
The Government have a word to say to the following people: wise users of energy, who have voluntarily invested millions of pounds in more efficient and therefore more environmentally friendly energy use and who intend to continue that investment; those who have switched to cleaner forms of energy, such as combined heat and power or liquid petroleum gas; those who have made internal arrangements to help achieve Kyoto targets; those who have supported the Government's warm words on greenhouse gas emissions; those who operate in an industry facing intense competition from overseas companies not subject to such rigorous energy tax applications; and those who operate in countries that have not signed up to Kyoto. That word is, tough. Those people will have to bear the full brunt of the energy tax, or a reduced amount that is still woefully inadequate.
"We do not believe that an energy tax levy is the most cost-effective way of encouraging business to make carbon reductions and are extremely concerned as to the likely impact of the current proposals on UK global competitiveness."
I entirely agree.
"Making it impossible for us to operate our plants profitably is not a sensible policy. Forcing us to close plants here which will be replaced by inefficient plants in other parts of the world is the height of NIMBY nonsense.
Steel--even on the very rough figures provide by the Government--will be the biggest loser of all the industrial sectors. The fact is that £238 million in tax will be taken from the sector, but only £5 million will be rebated to it in national insurance. If we take the hints of the hon. Member for Rotherham (Mr. MacShane) that there will
be a generous 50 per cent. rebate of energy tax, we reach the figure of £119 million--which will still be more than 20 times what steel receives in national insurance rebate. Even his own figure of £55 million in energy tax would be more than 10 times what the industry will receive in rebate.
There is no need for an energy tax. We can meet the Government's environmental goals without it."
"This tax is a blunt instrument. It will not meet the Government's targets under the Kyoto protocol to reduce carbon emissions, as it is targeted at energy consumption rather than carbon emissions. Neither will it encourage suppliers to switch to green sources of electricity."
I could also mention water, farming, food and drink, chemicals and many other sectors, including many smaller businesses. What the Government say about small businesses is another red herring in their proposals. The CBI report identifies many small industries that will lose considerably by the proposals. It gives the examples of a west midlands castings manufacturer that will pay £13,000 and get back only £230 in reduced national insurance contributions, and a Welsh mould maker that will pay £2,000 in tax and get back only £70. The tax will affect all areas of business and industry.
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