Most British businesses will not suffer in competition with foreign companies because of the European Union’s emissions trading scheme, a report has found.
But cement, steel, aluminium, chemicals, fertiliser and pulp and paper businesses might be hurt by the scheme, according to the study by the Carbon Trust, a government-funded body charged with helping companies to cut emissions.
Some businesses in these sectors will be hit hard because they compete internationally with companies outside the EU, which are not obliged to cut their emissions and so have no need to pass on the cost of emissions cuts to their customers. By contrast, the UK power generation industry - which has the biggest emissions - does not compete directly with overseas companies and can pass on costs more easily.
But as the worst affected businesses make up only a small part of the UK’s overall industry - which account for about 0.5 per cent of employment and less than 1 per cent of GDP - the Carbon Trust said overall the economy would not be damaged, even if deeper cuts in emissions were introduced.
The trust proposed that the sectors most affected should continue to receive some free permits to emit carbon dioxide under the trading scheme, instead of having to buy them at auction. The Carbon Trust also said the effects of the trading scheme, which has operated since 2005, would not be sufficient to cause widespread migration of heavy industry away from the EU.
Michael Grubb, chief economist at the Carbon Trust, said: "This analysis is a nail in the coffin for the myth that the EU ETS presents a threat to overall business competitiveness.
"For more than 90 per cent of manufacturing industry, carbon costs will remain trivial compared to these other influences on international competitiveness."