Carbon floor price to ‘wipe out’ manufacturer profits

The proposed introduction of a floor price for carbon could wipe out the profits of construction product manufacturers, materials companies are claiming.

Product makers are lobbying the government independently and through trade associations to rethink the measure, which they say could double energy costs for intensive energy users.

However, the chancellor - who in March announced a £16 per tonne carbon price from 2013 in his Budget, rising to £30 per tonne by the end of the decade - sees the plan as a way to guarantee investment in the UK’s energy infrastructure, including new nuclear power stations, without public spending.

Budget incentives for clean energy users, through the Climate Change Levy, will be just a quarter of the size of the cost increases created by the floor price. A carbon price will not be introduced in Europe until 2017.

An analysis by the Energy Intensive Users Group shows that energy costs for a typical product manufacturer turning over £100m could rise from just under £20m to almost £40m. The group said the floor price will mean UK energy consumers facing double the carbon costs of European competitors, “adding millions to the cost of manufacturing energy-intensive products.”

The ceramics industry, which makes bricks, tiles and toilets, estimates the likely doubling of electricity baseload prices could add £40m to annual energy costs by 2030, with the increase being more than the annual profits for half of the firms in the sector.

Michael Ankers, chief executive of the Construction Products Association, said: “Manufacturers may move out of the UK, they will be looking at whether France or Germany will offer them more.”

The issue was raised at a meeting of the all-party study group for construction last week. Laura Cohen, chief executive of the British Ceramic Federation, said the move would “expose UK manufacturers to costs overseas competitors just don’t have” and drive jobs overseas.