Budget 1999: Energy Tax - Green lobby praises anti-pollution measures

A NEW energy tax for industry and a raft of measures to cut car pollution are significant steps towards meeting Britain's tough targets for cutting the greenhouse gases believed to be causing global warming.

They drew an effusively warm welcome from environmentalists, but the prospect of the new tax was greeted with apprehension by industry.

The tax was recommended in a report last November from Lord Marshall of Knightsbridge (formerly Sir Colin Marshall), the chairman of British Airways and past president of the Confederation of British Industry (CBI), and will come into operation in two years' time.

The Government considers the tax unavoidable if emissions of carbon dioxide from power stations are to be curbed in line with the Kyoto agreement on climate change of December 1997, and the even tougher Labour manifesto pledge to cut CO2 emissions by 20 per cent by 2010.

Mr Brown gave no detail of levels for the tax, but promised that it would be revenue-neutral, and industry as a whole would be compensated for its additional bill with cuts in the level of employee national insurance contributions (NICs) from 12.2 to 11.7 per cent. Energy-intensive industries would be set "significantly lower" rates of tax if they improved their energy efficiency, he said, promising discussions with them.

But the big energy users, such as the steel, cement, aluminium and chemicals industries, reacted warily.

"I don't think energy- intensive industries can stand being taxed any more than they are without being driven out of business," said Lisa Waters, economic adviser to the Energy-Intensive Users' Group, which represents firms with huge electricity bills.

Energy represented up to 80 per cent of the costs of some sectors such as aluminium and chemicals, she said, and as they were capital-intensive rather than labour-intensive, the NICs cut would not fully compensate them. "It all depends on the exemptions," she said.

Fiona Davies, energy adviser to the CBI, said: "The extent of the level at which the exemptions are set will be crucial in terms of the effects of the tax on competitiveness."

However, the move delighted environmental groups. Ian Taylor, scientific political adviser to Greenpeace, said it provided "welcome recognition that the protection of the climate requires a long-term signal to industry to change its ways. That, as Lord Marshall recommended, means a tax."

Charles Secrett, executive director of Friends of the Earth, said that New Labour had taken its "first halting steps towards green economics".

The Institute for Public Policy Research, the left-leaning think-tank that has long supported an energy tax, was even more generous in its praise. "This is probably Britain's greenest-ever Budget, and it helps prove the Chancellor's commitment to the environment," said its environment researcher, Chris Hewett.

The Government is confident of meeting the first of its two climate-change targets, the one in the Kyoto treaty. This obliges it to make a cutback in a "basket" of CO2 and five other industrial gases to 12.5 per cent below their 1990 levels by 2010. That target is 189 million tons (in "carbon equivalent") On present policies Britain will be emitting 194 million tons in 10 years' time, but ministers feel energy-saving measures in the pipeline will enable the target to be met.

However, the Labour manifesto target, subsequently confirmed, of a 20 per cent cutback from 1990 levels in CO2 alone, is a much tougher proposition. That target is 135 million tons, and on present policies Britain will be emitting 163 million tons of the gas in 2010. The gap will take some bridging.

Mr Brown said yesterday that the energy tax was calculated to take out 1.5 million tons of CO2 annually, and the anti-car pollution measures he announced would account for another 1.5 million tons.

There is a long way to go, and scientific concern continues to grow over climate change. Last year was the hottest year in the modern climatic record and British scientists who have reconstructed the climate of the past from tree-ring data said it was the warmest for 1,000 years. The five hottest years have all been in the Nineties.