Amongst the Christmas presents the Chancellor George Osborne is expected to give to the British economy tomorrow in his Autumn Statement is one high on the wish list of energy-intensive businesses: relief on their carbon taxes.
It's expected that the combined effect of the compensation measures on the table will be to reduce energy bills for such UK firms by 5-10%.
The rebate will be worth a total of about ￡212 million for the period 2012-2016 to those affected by the EU Emissions Trading Scheme (EU-ETS) tax and the Climate Change Levy (CCL), and ￡250 million in the form of rebates and compensation for those affected by the upcoming carbon price floor.
High energy users, and Conservatives, have been complaining that these taxes harm their international competitiveness, citing the fact that their German competitors, for instance, benefit from carbon tax rebates worth more than €5 billion a year, paying only €0.5 of a €35 tax.
For example, medium-sized cement manufacturer CEMEX faces an alleged ￡20 million bill for complying with carbon legislation, and the multinational Tata Steel has claimed that the tax proposals are making it think twice about a ￡1.2 billion investment in the UK.
Critics argue that a rebate will reduce the incentive on firms to save energy, saying that the Climate Change Agreements (CCA), which thousands of such firms have signed up to and which entitle them to reductions on the Levy in return for saving energy, are creating real savings in energy bills and carbon emissions.
The Department for Business will consult on the proposals soon.
The EU-ETS sets a cap on companies’ carbon emissions. If they want to emit more, they must buy credits that each represent one tonne of CO2.
The Treasury's planned compensation for the effect of the EU-ETS on big emitters will total ￡12 million in 2012/13 and ￡50 million in each of the following tax years.
The new carbon price floor, to be introduced in 2013, will artificially increase the price of these credits from that set by the market to that set by the government. The Treasury's proposal is for this regulated price to be almost double the current, lowest-ever, market price: ￡16 per tonne of CO2 in 18 months' time, rising to ￡30 per tonne by 2020.
The effect of the price floor is therefore likely to be keenly felt, since the price of carbon is rock bottom at the moment.
The compensation amount suggested to cushion this effect is ￡40 million in 2013 and ￡60 million in 2014.
The purpose of the price floor is to provide funding for investment in green technology; whereas the CCL revenue disappears into the Treasury's general accounts. (The previous Labour government had originally intended the CCL to fund green investment.)
The Treasury has also signalled that the discount on the CCL for those signed up to the CCA will rise to 90% from April 1, 2013, up from the 80% already scheduled. This follows Osborne's reduction of it from 80% to 65% earlier this year.
This change will cost the taxpayer ￡40m over 2013-2015.
Furthermore, the energy-guzzling industries, which include the glass, paper, cement, chemicals, oil, metals, plastics and food sectors, will also receive protection from any price changes resulting from the measures to reform the electricity market currently being discussed.
"[The measures] will help make sure energy intensive industries are internationally competitive, but the government remains committed to the green agenda and to cutting carbon emissions by 80 percent by 2050," a Treasury source said.
Greenpeace was quick to criticise the proposals. “Energy intensive users already received a huge windfall when they were handed free pollution permits under the emissions trading scheme," said Doug Parr, its policy director.
"Now is not the time for George Osborne to be caving in to the special pleading of vested interests.”