Over time, financial penalties fail to incentivise companies into action and simply become another cost to be ‘budgeted for’. Rather than penalise companies for using energy, a report from the UK Manufacturer’s Organisation EEF is encouraging the UK Government to stop making industry pay excessive green taxes. Instead, to cut costs for energy users, offer tax incentives, reduce red-tape and look to new technologies to reduce emissions.

Commenting, EEF Director of Policy, Paul Raynes, says “The current system of energy taxation is too complex and is hurting Britain’s competitiveness. So instead of simply hitting firms with the big stick of ever-higher carbon taxes and levies, we should be offering them the carrot of tax breaks to invest in potentially very profitable advanced low carbon technologies.”

“Government should use the energy taxation review as an opportunity to step back, and make some bold decisions that can reduce energy costs, cut back on carbon emissions and improve the environment.”

UK energy costs higher than in Europe

According to EEF, following a decade of tinkering the UK now has a bewildering mix of energy efficiency schemes and taxes that have pushed up energy costs and increased red tape without a big enough impact on emissions. This has also made the price of energy for many industries much higher than those faced by European competitors.

In response, EEF is calling on the Government to widen the scope of its energy taxation review which should include the objective of reducing the overall burden of energy taxation by the end of this parliament. It should begin by scrapping the Carbon Floor Price and the overly-complex Carbon Reduction Commitment (CRC) energy efficiency scheme along with the introduction of a new energy efficiency tax discount to better drive investments in energy efficiency.

Current ROI less than expected

The present system is not providing the expected return on investment (ROI). It is estimated that the Carbon Price Floor will cost energy consumers £23 billion between 2013 and 2020 but only £6.5 billion of this will achieve its intended aim of supporting investment in renewables. Similarly, the CRC energy efficiency scheme is estimated to cost businesses almost £900 million in 2015/16 alone, but is only expected to deliver £334 million of investment over the next decade.

Increase R&D

In particular, EEF would like to see an increase in the percentage of government R&D funding spent on energy and environment, and calls on government to develop decarbonisation action plans for key energy intensive sectors, explore financing options that can deliver the major investments required and develop a targeted innovation programme to bring forward the technological solutions.

The report is available to download at http://www.eef.org.uk/resources-and-knowledge/research-and-intelligence/industry-reports/the-low-carbon-economy-moving-from-stick-to-carrot