§ Mr. Simon Hughes
To ask the President of the Board of Trade (1) what assessment his Department is making of the relationship between(a) the balance between the carbon and energy elements of the proposed EC tax on carbon dioxide and energy, (b) the treatment of electricity and (c) the future market for British coal; and if he will make a statement;
(2) what analysis his Department is undertaking of the consequences of the proposed EC tax on carbon dioxide and energy in respect of (a) energy consumption, (b) economic activity and competitiveness and (c) social impact.
§ Mr. Eggar
The Government continue to examine carefully the European Commission's proposed directive on a tax on carbon dioxide emissions and energy. This is without prejudice to a decision on its eventual adoption.
Further clarification of a number of important aspects of the proposal, including the treatment of electricity and the question of exemptions in the industrial sector, is required before a full assessment can be made of the potential impact of the tax. These issues are the subject of continuing discussions with other member states and the European Commission, in which my Department is assisting.
However, preliminary analysis undertaken by my Department last year indicates that a carbon/energy tax along the lines proposed by the Commission, but assuming no exemptions for industry, could reduce energnergy demand by around 5 per cent., and CO2, emissions by around 7 per cent. in 2,000, compared with projections set out in "Energy Paper 59". Different assumptions about the balance of the carbon and energy elements of the proposed tax would lead to different conclusions, with greater potential reductions coming from taxes weighted more towards carbon. Similarly, different bases for the treatment of electricity could lead to different effects.
The preliminary analysis also indicates that as coal is the most carbon-intensive fuel, the market for coal would bear a substantial share of any reduction in CO2, emissions arising from the proposed tax. However, the analysis, which was carried out prior to the coal review, does not indicate the impact on coal mining in the United Kingdom because it does not distinguish between indigenous and imported coal.
The industrial competitiveness and social impacts of the proposed tax would depend on a number of factors. These would include the use made of the tax revenues, the extent to which other countries outside the Community introduced similar measures and the extent of any exemptions from the tax for industries which are disadvantaged by imports from countries without similar measures. In considering whether such a tax should be introduced, the Government would need to be satisfied that it would not have unacceptable impacts on any particular groups of households or on the competitive 811W position of United Kingdom industry. My Department has separately sought the views of industry on the Commission's proposals: among the wide range of issues raised, the likely impact on industrial competitiveness was the main concern.