Debate pack: Energy intensive industries

Energy Intensive Industries

This Commons Debate Pack provides briefing for the Westminster Hall debate on Energy intensive industries on Thursday 10 March 2016.

Economic contribution of the energy intensive industries

In 2010, energy intensive industries (EIIs) accounted for around 4% of total gross value added (a measure of output) in the UK and around 2% of the workforce.^[1] The main energy intensive industries include the steel, chemicals, engineering and brick making industries.

Energy and low carbon policies

In recent years there have been increasing concerns raised about the financial impact of EU and UK energy and climate change policies on energy intensive industries. These include the EU Emissions Trading Scheme, the Carbon Floor Price and the costs of support for renewables through the Renewables Obligation and Feed- in Tariffs

Support packages

Since 2011 there have been various Government packages aimed at providing support to eligible energy intensive industrial sectors to assist with impact of energy and low carbon policies on energy bills.

2011 Package

The 2011 Autumn Statement announced a support package worth £250m originally due to start in 2013. The Chancellor said:

1. We will give particular help to our energy-intensive industries. I have not shied away from supporting sensible steps to reduce this country’s dependency on volatile oil prices and reduce our carbon emissions.
2. I am worried about the combined impact of the green policies adopted not just in Britain but by the European Union on some of our heavy, energy-intensive industries.
3. We are not going to save the planet by shutting down our steel mills, aluminium smelters and paper manufacturers. All we will be doing is exporting valuable jobs from this country, so we will help them with the costs of the EU trading scheme and the carbon price floor, increase their climate change levy relief and reduce the impact of the electricity market reforms on those businesses, too.
4. This amounts to a £250 million package over the Parliament, and it will keep industry and jobs here in Britain.^[2]

This included amounts to compensate energy intensive industries for the impact of the EU Emissions Trading Scheme (EU ETS) (£110 million) and the UK’s Carbon Price Floor (£100 million) for the period April 2013 to March 2015.

For this package, the Government notified the European Commission of its plans to compensate certain energy – intensive industries for the indirect costs of the carbon price floor.  The European Commission approved this State Aid application on 21 May 2014 with payments due to be paid shortly after. ^[3]

2014 package

In Budget 2014 the Government announced it would:

• extend the compensation for energy intensive industries for the cost of the Carbon Price Floor (CPF) and EU emissions trading system to 2019-20; and
• introduce a new compensation scheme, to help energy intensive industries with higher electricity costs resulting from the renewables obligation (RO) and small-scale feed in tariffs (FiT) for renewable generation, from 2016-17.

At the same time it announced the combined cost of these compensation measures was expected to be around £500 million a year from 2016-17. Along with previous announcements, HM Treasury say that this package means energy intensive industries would be compensated for all government policy designed to support low carbon and renewable investment up until 2019-20. ^[4]

On 17 December 2015, the Government announced that its application to allow compensation for the energy costs of energy intensive industries under State Aid rules had been granted by the EC.^[5]

On 19 January 2016, the Government published guidance on claiming compensation for the indirect costs of the RO/FiT for eligible EIIs. For the current financial year [2015/16], eligible EIIs may submit applications for compensation for the costs of the RO/FiT in their electricity bills up to 31 March 2016. The compensation amounts will be calculated from the date of the State Aid decision (14 December 2015). Thereafter, such payments will be made quarterly in arrears. [6]

Onn 21 December 2015, The Business, Innovation and Skills Committee published a report on the Steel industry and expressed concerns as follows:

1. [   ] we regret that after the previous Government brought forward the compensation package in 2011 Ministers have still not succeeded in implementing it in full. Successive Governments have not prioritised the issue sufficiently to force it up the agenda at the European Commission, which could have approved the full package years ago. This delay has directly affected the competitiveness of the UK steel industry and been a contributory factor to the current crisis. (Paragraph 15)[7]

On 26 February 2016, the BIS Committee published the Government’s response which said:

1. The Government does not agree with the BIS Committee’s view that the 2011 compensation package was not implemented. This was commenced in 2013 following State Aid approval by the European Commission. Compensation payments to EIIs for the indirect costs of the EU Emissions Trading System and the Carbon Price Support mechanism have been made since 2013 and 2014 respectively. They will continue for the life of the Parliament. ^[8]

International Comparisons

The Business, Innovation and Skills Department commissioned report , An international comparison of energy and climate change policies impacting energy intensive industries in selected countries was published in 2012.The report  examined the range of polices  in operation in various countries to provide assistance to energy intensive industries in various forms. Policies include direct financial assistance, capital grants and tax breaks.

[1]           DECC, Estimated impacts of energy and climate change policies on energy bills, March 2013, para 119

[2]           HC Deb 29 November 2011 c799 onwards

[3]           HC Deb, 1 July 2014, c538W

[4]           HM Treasury Budget 2014, HC1104, 19 March 2014 para 1.107

[5]           BIS, Press release: UK government secures EU compensation for Energy Intensive Industries, 17 December 2015

[6]           BIS Committee 3rd Special Report – The UK steel industry: Government response to the crisis: Government Response to the Committee’s First Report of Session 2015-16 26 February 2016

[7]           BIS Committee 1st Report -The UK steel industry: Government response to the crisis, 21 December 2016

[8]           BIS Committee 3rd Special Report – The UK steel industry: Government response to the crisis: Government Response to the Committee’s First Report of Session 2015-16, 26 February 2016