MANUFACTURERS will face extra costs of £1.8 billion from the soaring price of energy this year, with £600 million of that due to the latest anti-pollution initiative — emissions trading — which came into force at the weekend.

The increase, to be disclosed in a report by the EEF, the manufacturers’ organisation, will exert a tough squeeze on an already fragile manufacturing recovery The new emissions trading programme is a European scheme to reduce greenhouse gases and is based on permits for carbon use. Most sectors of industry will be allocated targets for emissions of CO2 and if they beat these they will be able to sell permits to other businesses in the UK or across Europe.

In turn, if companies want to exceed their pollution allocations they will be forced to pay penalties or buy permits from other businesses.

The scheme is intended to be revenue-neutral and theoretically will not present companies with appreciable costs if they continue business as usual. Only the electricity generators will be set tougher targets than they currently face under the climate change levy — the old anti-greenhouse gas programme from which business can opt out.

The EEF believes that emissions trading will account for a third of the increased energy costs of industry next year.

The organisation is also concerned that the final allocations have not yet been set and so business is in the dark about the details of its operations and whether it should opt out of the climate change levy. Employers are also worried that British industry will face higher costs for energy because of the scheme, compared with the rest of Europe, if other European countries set looser goals for industrial pollution.

Additionally, they fear that the programme, which is ultimately intended to reduce energy use and encourage more energy- efficient production, is throwing up anomalies. For example, the steel industry has to burn coke in its manufacturing process and this emits a large amount of carbon and yet it is not an energyintensive operation.

Stephen Radley, chief economist of the EEF, said: “The problem with increased energy costs is that if they continue, they will begin to affect investment decisions.

“We are not opposed to emissions trading in principle, but we are concerned that because the rest of Europe doesn’t have as liberalised an energy market as Britain does, emissions trading could follow that same pattern and British industry would be disadvantaged.”

The EEF is pressing the Chancellor to mount an inquiry into energy prices because it says that they are outpacing those in the rest of Europe alarmingly.

The European Union has committed itself to reducing carbon dioxide emissions by 8 per cent from 1990 levels by 2012 as part of its Kyoto agreement. However, the UK additionally has pledged to cut CO2 emissions by 20 per cent by 2020.

The emissions-trading scheme will be the first internationally traded anti-pollution programme in the world.

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