Chancellor urged to drop CPF plans

According to analysis by the CPI, proposals to introduce a new CPF from April 1 2013 could see energy costs for the papermaking sector increase by 2.4% in the first year, with this figure rising to 22.3% by 2020.

It also warns the plans could potentially render the sector’s combined heat and power (CHP) plants “uneconomic to operate”.

The introduction of a CPF, which was announced by the chancellor in the 2011 Budget, forms part of a wider reform of the electricity market, which aims to provide “greater support and certainty to the price of carbon in the power sector to encourage investment in low-carbon electricity generation”.

However, the CPI is arguing the measure would see the new tax “retained by HM Treasury rather than being reinvested in new low carbon generation plant or energy efficiency”, while those already operating low carbon plants, such as nuclear, would receive a windfall profit from those paying higher bills.

CPI director general David Workman, said: “We urge the Government to rethink this measure before further damage is done to UK industry”, adding that the papermaking industry has the potential to “rebalance the UK’s economy”.

He said: “Papermaking is a sector accepted as at risk of carbon leakage, as carbon-related costs not faced by overseas competitors cannot be passed on to customers without losing business to imports from producers based in locations with lower carbon costs.”

Furthermore, the CPI said it is concerned the papermaking sector will also be “severely hit” by changes in the level of allowances provided to cover EU emission trading scheme (ETS) CO2 emissions. From January 2013, no free allowances will be provided to cover emissions related to electricity production.

Mr Workman concluded: “Carbon costing can only be properly addressed through a genuine global agreement linked to the existing EU ETS. A UK Carbon Price Floor simply locks producers in the UK into a high and quickly increasing carbon price not faced by competitors abroad.”

Carys Matthews