A new carbon tariff needs to be imposed on polluting foreign manufacturers that import goods into the UK, according to a report on the energy crisis released by the John Mills Institute for Prosperity today.
Energy and Manufacturing: Solutions to high cost energy facing the manufacturing sector is co-authored by Institute for Prosperity founder John Mills and Institute for Prosperity Advisory Board members Hon John Penrose MP, the Hon Stephen Kinnock MP, and Sir Vince Cable. It offers solutions to rising energy costs and a weakened manufacturing sector.
In the report, Penrose calls for the introduction of a Carbon Border Adjustment Mechanism to penalize carbon-emitting foreign manufacturers. He said: “For decades, British manufacturing has been hobbled by much higher energy prices than their international rivals. But we can level the playing-field by pricing and taxing carbon properly so British firms can’t be undercut by foreign competitors manufacturing the same goods by using cheap but inefficient and dirty fuels or manufacturing techniques.”
Such a move would reverse the trend of UK factory closures by creating thousands of new, green manufacturing jobs, as well as delivering simpler, lower taxes due to the removal of green levies and fuel duty.
Penrose also proposes an overhaul of the energy market price cap by making it illegal to charge existing customers a different price to those who switch.
He added: “Our energy markets are slaves to gas and urgently need reforms so both manufacturing businesses and households can see the benefits of cheaper zero-carbon supplies. The new Energy Strategy says there will be market performance proposals later this summer and they can’t come soon enough.”
Mills opens the report by outlining the ongoing decline of the UK manufacturing sector, which now accounts for less than 10% of the UK’s GDP, and the flailing UK economy. He said: “Failure to accelerate UK growth will result in a terrible cost in terms of desperately low levels of investment, pitifully low productivity growth, stagnant or falling living standards, and relative if not absolute international decline.”
Writing about growth and resilience, the Hon Stephen Kinnock MP warned that Britain has an increasingly dangerous overreliance on hostile countries such as Russia and China for its energy supply. This has left the UK more exposed to global shocks such as the Covid-19 pandemic and the Ukraine conflict, he claims.
Kinnock said: “This has to be a fork in the road. We must reject both the unfettered openness of the past 40 years, but we must also recognize that protectionist measures can inadvertently shut off the healthy foreign direct investment we need. It is critical that we find that balanced path.”
Kinnock said the government should utilize its Brexit freedoms to put manufacturing at the heart of a new, self-sufficient national economy driven by high-tech and green industries and investing significantly in jobs and training.
Adding to the growing calls for alternative energy, Sir Vince Cable believes the quickest and most efficient way to improve energy security is through the expansion of onshore wind. He said: “By using long-term projects such as the Welsh tidal barrage, the government can ensure an unlimited supply of energy at low marginal cost. The new Energy Bill is therefore a prime opportunity to revive UK manufacturing, boost jobs, level up the economy, and reduce environmental impact.”
With global wholesale gas prices skyrocketing and the cost-of-living crisis exacerbated by the war in Ukraine, the report also calls for the government to harness more renewable energy such as wind and solar. The government should upgrade and modernize the aging electricity grid with more local renewable electricity generators to meet the growing need for electric vehicles, and to discount electricity for factories and manufacturers.
