The government should replace "green" taxes with tax incentives to encourage businesses and to reduce their carbon emissions, says the manufacturers' organisation, EEF.
In a report, the low carbon-economy - from stick to carrot, EEF argues that the UK's complex mix of energy efficiency schemes and taxes have increased red tape and pushed up energy costs higher than those faced by European competitors, without significantly reducing emissions.
The chancellor, George Osborne, announced a review of the business energy efficiency tax landscape in his July budget. EEF says the government should use the review to offer the "carrot" of tax breaks to invest in advanced low-carbon technologies, instead of using a "big stick" of ever-higher carbon taxes and levies.
"The government should use the energy taxation review as an opportunity to step back, and make some bold decisions that we believe can reduce energy costs as well as cutting back on carbon emissions, and improving the environment," said director of policy Paul Raynes.
EEF wants the government to scrap the carbon floor price (CFP) and the carbon reduction commitment (CRC) scheme and widen the scope of its review to reduce by the end of this parliament the overall burden of energy taxation.
The report claims the CFP will cost energy consumers £23 billion by 2020, but that only £6.5 billion of this money will be used to support investment in renewables. It also calculates the CRC will cost businesses almost £900 million in 2015/16 alone, but is expected to deliver only £334 million of investment over the next decade.
Current policy mechanisms on investing in industry emission reduction are also inadequate, argues EEF. Recent government research found that the UK's most energy-intensive industries could reduce emissions by as much as 73% by 2050, but this would an estimated cost of £16 billion. EEF says that industry cannot afford to make his shift without substantial government investment in low-carbon innovation and technology.
"Greening heavy industry can't happen without rolling out radical new technologies that are still far from fully developed, or financially viable, and doing that quickly. Industry wants to step up to the plate but the economics say it cannot do so alone. This must be a partnership between business and government," said Raynes.
The government needs to increase funding for research and development in energy and environment areas or risk losing out on the growing green economy, says the report. In 2011/12, the global market for low-carbon environmental goods and services was worth £3.4 trillion and it is growing each year.
"Time and again, other countries have made a fortune from British inventions and we're already seeing that happen in low-carbon technologies," said Raynes.
