Limiting the use of fossil fuels and reducing carbon emissions are laudable objectives; however the current road map towards achieving the not just the 4th but all the carbon budget targets will lead to an unacceptable impact on the economic viability of small and micro businesses.
Our argument is that without significant reorientation of government fiscal, energy, transport, and environmental policies the small and micro business sector and in fact all of UK plc will be adversely affected by the carbon budget targets.
We recognise that upgrading our energy infrastructure and meeting carbon reduction targets mean that energy bills are going to rise at a time when small businesses simply cannot afford it. Reform of the electricity market, investment in the electricity distribution network, and the introduction of a carbon price floor are all going to jeopardise the UK’s ability to compete with other leading European economies during these difficult economic times.
A 2011 FSB ‘Voice of Small Business’ Survey Panel found that 81 per cent of respondents were concerned about the impact of rising energy costs on their business.
While the FSB accepts that there is an urgent need to invest in the country’s infrastructure and to secure energy provision for the future, there is little doubt that this will significantly affect small businesses’ at a time when they can ill afford it.
Green Levies on the energy bills of small and micro businesses amount to around 8-10%. We are not arguing that it is wrong to subsidise or incentivise carbon reduction but that requiring the energy companies to collect this from small and micro businesses for cross subsidising carbon reduction is inefficient, ineffective, inequitable and unfair.
In the last eight years alone, the smallest of businesses have seen a 100 per cent increase in the cost of electricity per unit and a 125 per cent increase in the cost of gas per unit in real terms.
This remorseless rise in energy costs is hurting not only individual businesses but also the competitiveness of the UK as a whole. Recent research asked UK businesses whether they expected the price of energy to rise or fall over the next two years. Only three per cent expected the cost to fall. The same businesses were asked what action they would take should energy prices rise by 25 per cent: eight per cent said they expected to close as a direct result of the cost increases.
Another survey of leading UK businesses found real concern about how rising UK energy prices are damaging the nation’s international competitiveness. Sixty two per cent of businesses expect the UK’s energy prices to be higher than those of its competitor economies in 2015, with only five per cent expecting them to be lower.
What we see is a complete failure of successive governments to incentivise or to support small and micro businesses to invest in energy reduction or to help them make their manufacturing and operations more energy efficient. Symptomatic is the stillbirth of the green deal for business and the failure of the green investment bank to support investment by small and micro-businesses in renewables. Recent reductions in FIT’s further reduces the incentives for investment
The Carbon Trust has lost its government funding and the energy savings trust are focussed on the domestic sector. So the needs of our sector is being left to market solution; to unregulated third party intermediaries and energy consultants, and to energy suppliers for whom any energy efficiency services they provide are outside their licence conditions and unregulated by Ofgem.
Research by DECC has shown that few small and micro businesses are aware that energy consultants exist – and those that are aware of them, think consultants will not be interested because their energy spend is low. Almost all of the businesses surveyed are sceptical that any savings they will make will cover a consultant’s fee or make a return on investment – so we’ve got a long way to go to get them to invest or change their behaviour.
its widely acknowledged that EU ETS has failed to be stringent enough to stimulate investment in low carbon alternatives, the current price of around £5–£6 per tonne of carbon is insufficient to encourage low carbon investment decisions.
The UK has chosen to act unilaterally and in 2011 announced plans for a national CPF in order to increase the price of carbon in the domestic market. This policy decision is set to increase energy bills significantly in the next decade. The CPF has a starting price of £16 per tonne of carbon in 2013 – more than twice the level of the EU scheme. It will nearly double to £30 per tonne of carbon in 2020 before reaching £70 per tonne of carbon in 2030 (compared to real 2009 prices).
The Treasury’s conservative estimate is that the average bill for a medium sized firm will increase by up to six per cent by 2020 as a result of the UK’s implementation of the CPF next year. Once again, there are far ranging ramifications with regard to the economic competitiveness of the UK economy. The CPF will see the UK abandon the EU ETS, which means that, in the absence of the UK, the price of carbon will fall in the rest of Europe. Owing to the introduction of the UK’s CPF, from April 2013 UK industry and businesses will be paying £16 per tonne while the rest of Europe will probably be paying even less than the current £5–£6 per tonne.
The FSB recognises the need to encourage low carbon investment but believes the UK’s independent action will seriously harm the competitiveness of the UK economy at a time when it cannot afford it. The FSB believes there is a serious risk that large multinational companies and energy intensive industries will choose to move abroad because of the introduction of the CPF, which could have serious consequences for small businesses involved in their supply chains.
No matter what one thinks of the specifics of the fourth carbon budget the current roadmap towards lower CO2 levels is deeply flawed. Two examples to finish with
The roll-out of smart metering and the Green Deal both have the potential to empower businesses to help achieve the targets and at the same time soften the impact of some of these price rises.
However, as currently structured and framed the smart meter roll out runs a high risk of the non-domestic sector failing to deliver the reductions that we will need to achieve the carbon targets post 2020 –we fear that their potential will not be realised. Smart metering could help small businesses take control of their energy use by understanding how to change their behaviours and what investments are worthwhile but yet again it seems that the ‘big six’ energy companies look likely to be the real beneficiaries of the roll-out. We’ve been saying this for a number of years now, but it’s only in the last month that DECC and Ofgem have woken up to the gaps in the roll out programme and licence conditions, quite what if anything they will do to plug the gaps, only time will tell.
The Green Deal had the potential to help small and medium-sized businesses (SMEs) mitigate their exposure to rising energy costs, but the scheme is not sufficiently attractive to stimulate significant levels of take-up among small businesses.
The committee’s recommendation that Government should aim for full implementation of cost-effective measures in the 2020s, including power sector decarbonisation, improved energy efficiency and early electrification of heat and transport is one that we support.
However unless it is done in partnership with the small and micro business sectors achieving any of the carbon budget targets and in particular the 4th will be at a risk to the economic viability of the small and microbusiness sector without a significant reorientation of government fiscal, tax and energy policy.
Allen Creedy