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TUC Budget Submission 2013

Industrial policy for the green economy

The TUC believes that green industries are a vital source of future growth, and that industrial policy must pay specific attention to boosting capacity in these areas. Last year the green economy generated a £5 billion trade surplus^[1] in goods and services, in contrast to the UK's continuing monthly trade deficit^[2]. Low carbon goods and services sectors employed around 950,000 people in 51,700 companies last year. Strong growth in exports (up 3.9 per cent) and employment (2.8 per cent) point to a sector coming into its own. The need for industrial policy to take specific account of its potential is clear.

BIS figures reveal that the UK imported £6.8 billion of manufactured 'green goods' in 2011-2012, such as wind turbines, solar panels and alternative fuel vehicles which we should by now be making at volume ourselves. The TUC believes that if we are to take advantage of these opportunities sector based industrial strategies are needed to complement the government's energy market reforms, starting with nuclear, offshore wind, oil and gas and coal. The emerging BIS strategy for offshore wind, 'to promote innovation, investment and economic growth in the UK-based supply chains', is a welcome start^[3].

Yet the UK's track record of developing new supply chains is not encouraging, as we set out below.

• Wind turbine manufacture: Of the 4,000 wind turbines now installed and operating in the UK few, if any, were manufactured in the UK.
• Solar power: In early 2012, changes to the solar power tariffs caused a supply chain 'boom and bust'^[4]. No-one who installed solar panels had any worry about receiving the price they were promised for the next 25 years. But while those who developed businesses in the supply chain grew, they were subsequently cut down as the tariff was curtailed.
• Carbon capture and storage: Carbon capture and storage (CCS) technology is an essential part of the UK's energy decarbonisation strategy to 2030 and beyond. But we are still a long way from capturing carbon emissions from coal and gas power stations and heavy industry. In 2011 the Government scrapped the CCS levy and launched a review of electricity market reforms. It now appears that just £200m, rather than £1bn, has been set aside in this Parliament^[5] for the supposed £1bn CCS competition.

It is not too late for the UK to take the lead in green industries, and to boost our supply chain capacity across the green energy sectors. In particular, we believe that Budget 2013 should explicitly reinstate the government's commitment to deploy the full £1bn budget for CCS technology in this Parliament.

Long-term certainty on energy policy is also key to securing green investment. Faced with decisions that will provide the UK with reliable, affordable and low carbon energy to 2030, investors would prefer certainty in energy policy and political commitment. But Ernst & Young have reported signs of a potentially significant slowdown in the pace of energy sector investment^[6], 'due primarily to the ongoing uncertainties around the deliverability and construct of the UK's reformed energy policy.' Companies are currently 'delaying investment decisions as they assess the economic environment and the development of new policies and regulations.'

Treasury contributions to energy policy are adding to uncertainty. In Autumn Statement 2012, the Chancellor proposed far more 'unabated' gas in our power supply through to 2030 than advised^[7] by the Committee on Climate Change. The independent committee has since argued that the gas generation strategy has undermined the investment climate.

The TUC is aware, for example, that leading wind turbine manufacturers would be likely to announce new investment if the government were to send stronger signals of a future for renewables, especially wind, in the energy mix well beyond 2020. But the big turbine makers want to know that UK demand will continue at high volumes into the future before they spend their money.

On green infrastructure our funding gap is significant, impeding progress towards the low carbon economy we need. Government funding has potential to make a real difference here, whether it's supporting the transitional cost premium of electric cars and the cost of a national battery charging network, increasing funding for home and workplace energy efficiency measures or supporting our core industries to develop the technologies that will allow them to become low carbon world leaders. Urgent action is also needed to realise the UK's carbon capture and storage (CCS) demonstration programme.

1.9 We therefore believe that the Government should announce in Budget 2013:

a carbon reduction target for the Energy Bill in line with the advice from the independent Committee on Climate Change.

its long term expectations to 2030 for renewable energy, new nuclear and carbon capture technology in the energy mix, to ensure that supply chain investors have long-term and stable volume certainty of work.

Energy Intensive Industries

The UK's industrial policy needs to take particular account of the energy intensive industries. With a record of value added generally well above the UK average, see chart, and combined turnover in excess of £86bn, these industries account for one-fifth of manufacturing turnover.

Gross Value Added per employee in UK energy intensive industries.

Source: Building our low carbon industries, TUC-EIUG, 2012.

But while the Government's package of energy price compensation measures, due to roll out from Spring 2013, will bring important short-term relief, both the TUC and the Energy Intensives Users Group (EIUG) ^[8] have urged the Government to urgently develop this approach into an sustainable, long term industrial strategy for the energy intensive industries, a move endorsed by the Environmental Audit Committee's (EAC)^[9] report into the Government's compensation scheme.

In Germany, as the TUC's evidence to the EAC inquiry revealed, over the period 2010-2012 industries including energy intensive industries benefitted from a range of reliefs from duties, levies and taxes worth 26 billion euros, or some 8bn euros a year. Although the UK compensation package is welcome, our research suggests that the costs burden is of a far greater magnitude than is recognised by the support that has been offered to date.

2.3 The Chancellor should therefore signal in Budget 2013:

a commitment to support an industrial strategy for energy intensive industries, backed by new long term resources, covering investment funding, innovative technology development and extending current compensation package through to 2020.

http://www.bis.gov.uk/assets/biscore/business-sectors/docs/l/12-p143-low-carbon-environmental-goods-and-services-2010-11.pdf

http://www.ons.gov.uk/ons/rel/uktrade/uk-trade/november-2012/stb-uk-trade--november-2012.html#tab-Value-of-UK-Trade-in-Goods

https://www.gov.uk/government/publications/offshore-wind-sector-strategy-call-for-views

Ian Temperton, Climate Change Capital, October 2012: http://www.climatechangecapital.com

Financial Times 13 January 2013: http://touchstoneblog.org.uk/2013/01/hidden-cuts-jeopardise-ccs-industry/

Powering the UK, 2012, section 5, interviews with investors.

http://hmccc.s3.amazonaws.com/EMR%20letter%20-%20September%2012.pdf.

Building our low carbon industries, TUC-EIUG, 2012.

Energy intensive industries compensation scheme, Environmental Audit committee, Sixth report, January 2013

Briefing document (1,100 words) issued 22 Feb 2013