A Thick Fog Descends as British Industry Is Told to Clean Up Its Act: Analysis ; Environmental Measures Are Bad for the Health of Economy, Claim Companies from Power Generators to Road Hauliers as They Rail against the Costs and Uncertainties of the New Green Laws. Clayton Hirst and Tim Webb Report

By Clayton Hirst and Tim Webb | The Independent on Sunday (London, England), April 24, 2005 | Go to article overview
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A Thick Fog Descends as British Industry Is Told to Clean Up Its Act: Analysis ; Environmental Measures Are Bad for the Health of Economy, Claim Companies from Power Generators to Road Hauliers as They Rail against the Costs and Uncertainties of the New Green Laws. Clayton Hirst and Tim Webb Report


Clayton Hirst and Tim Webb, The Independent on Sunday (London, England)


Over the past few weeks, the executives of some of the world's biggest airlines have been locked in secret meetings in and around London. Representatives from the likes of British Airways and Virgin Atlantic, as well as lobbyists from the Confederation of British Industry, are preparing to fight back against environmental targets which they say is swamping business in the UK. They are worried that the new regulations pose a serious threat to the future expansion of Heathrow, and with it, growth in the UK economy. After the election they plan to launch a campaign, with political backing, to champion the case for a third runway at the London airport.

Central to their argument will be the case that the 'green' rules must not constrain economic growth. This will fan the flames of argument between business groups and environmentalists. Sir Digby Jones of the CBI warns that the new laws are costing business pounds 4bn every year, putting thousands of jobs at risk. But his opponents, headed by the Environmental Industries Commission, have dismissed this as 'scaremongering'. They argue that some of the regulations will actually improve the competitiveness of business.

So what is the real cost of Britain going green?

In its 2003 Energy White Paper, the Government said its aim was for a 'low- carbon economy'. This policy document reinforced tough existing environmental laws and introduced new legislation, which companies are now starting to get to grips with. This includes the 'climate change levy' and the 'renewables obligation', which requires electricity suppliers to buy 10 per cent of their power from renewable sources like wind by 2010 " or face a penalty.

Most contentious is the European Union's new Emissions Trading Scheme, introduced in January. If industrial companies pollute above their carbon allocation, they have to buy 'credits' from greener companies. The price of carbon has doubled in the past month as generators have substituted gas (which has become very expensive) with coal. But because coal is dirtier than gas, generators must buy more carbon credits.

The Energy Intelligence Centre (EIC) estimates that, combined, the three schemes cost businesses an extra pounds 2bn each year, or 20 per cent on their normal electricity bill. Domestic users might be paying an extra 5 to 10 per cent each year, says analyst Matthew Williamson from EIC.

The emissions scheme has been dogged by hold-ups, threats of legal action and complaints from participants. Companies were not given their individual carbon allocations until over a month after the scheme was introduced, largely due to EU delays in approving each country's proposal. Of more concern to companies is the uncertainty over what happens in 2008 when the first phase of the scheme comes to an end. The EU has not even begun consulting member countries or industry on how to set the new allocation levels. The only likelihood, says Phil Cox, chief executive of generator International Power, is that the second phase will be tougher than the first.

Tony Ward, director of the energy practice at accountants Ernst & Young, predicts that it won't be until next summer that the EU sets the next round of individual allocations. The uncertainty is damaging, he says, for companies cannot make long-term decisions about investing in technology to make their plants more efficient and so reduce their carbon bill " which is the whole point of the scheme. 'The EU's aim is to change companies' behaviour and improve efficiency. But with all the uncertainty, the regulations are encouraging companies to sit on their hands and pushing them into a short-term compliance approach.'

Mr Cox agrees: 'These are long-term investments which need to be in place for a long time to get the payback. It's all about clarity.'

Steve Radley, chief economist at the EEF, a trade body for 6,000 engineering and manufacturing companies, warns that businesses may decide to move their operations overseas, where energy is cheaper.

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A Thick Fog Descends as British Industry Is Told to Clean Up Its Act: Analysis ; Environmental Measures Are Bad for the Health of Economy, Claim Companies from Power Generators to Road Hauliers as They Rail against the Costs and Uncertainties of the New Green Laws. Clayton Hirst and Tim Webb Report
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