Energy-intensive companies should be spared the government's planned penalty on carbon dioxide emissions or they will migrate overseas, the UK's biggest business organisation has demanded.
The CBI employers' organisation has said that companies in sectors such as steel, cement-making and chemicals could not sustain the planned minimum price for carbon dioxide, which the government plans to introduce as a way of propping up carbon prices that have fallen too low to stimulate investment in the green economy.
Such energy-intensive companies make up only about 1% of the UK's annual gross domestic product, but they are regarded as politically vital.
"The irony is that these companies are key to the green economy," said Rhian Kelly, director for business environment at the CBI. "These are the chemicals companies making lubricants for wind turbines, the aluminium [smelters] making supplies for electric vehicles, the cement companies responsible for the concrete that glues wind turbines in place."
At present, the price of carbon under the European Union's emissions trading scheme is about €11 per tonne, having languished since the financial crisis. This rate is widely considered to be far below that needed to stimulate investments in energy-saving and renewable energy technologies, which experts put at between €20 and €50.
The so-called carbon floor price would be achieved by means of complex regulations on businesses that would add up to a levy on carbon emissions. But many companies are opposed to this because they argue it will put the UK at a disadvantage to other European countries, where the carbon price is entirely decided by the markets.
The CBI said that energy-intensive companies should be exempted from the carbon floor price, and that EU state aid could be used to "create a level playing field so that all member states are able to protect the competitiveness of their energy intensive industries equally".
Companies putting in place industrial energy efficiency programmes should also be eligible for funding from the government's planned green investment bank, the CBI suggested.
However, separate research has shown that many companies are gaining from the EU market in carbon. Research from Sandbag, an environmental pressure group, has found that European companies will hold an accumulated cache of carbon permits worth €7bn to €12bn next year. This is because companies were awarded too many free permits when the quantity was set before the financial crisis, and their falling output since then has given them a windfall of free permits that they can sit on and use in the next phase of the trading scheme, which will run from 2013 to 2020.
The companies gaining most include the steelmaker ArcelorMittal, with a current surplus valued at €1.7bn. Tata Steel, which has unused permits valued at nearly €400m, recently announced 1,500 job losses at its plants in Lincolnshire and Teesside, blaming emissions regulations as well as the economic downturn.
Karl-Ulrich Köhler, chief executive of Tata Steel Europe, said at the time: "EU carbon legislation threatens to impose huge additional costs on the steel industry."
The CBI's recommendations came in a report entitled Protecting the UK's Foundations: a blueprint for energy-intensive industries, published on Friday.