The Energy Intensive Users’ Group (EIUG) highlights the underlying issues in the energy and carbon systems that are giving rise to a competitive disadvantage for UK energy intensive industries (EIIs). EIUG repeats calls for the UK Government to use levers immediately at its disposal to alleviate the pressure on EIIs.
In October 2021, EIUG set out clear proposals to help manage the impact of sustained high energy costs for EIIs. The Government has not yet acted to assist industry through this winter, nor made a clear commitment to address the underlying issues that impact the international competitiveness of UK EIIs.
Dr Richard Leese, EIUG Chair, said:
“On top of already uncompetitive UK industrial energy costs, the current sustained high energy prices, coupled with UK carbon prices at a premium to those in the EU, is driving greater disparity between UK and its competitors. UK Government inaction threatens the inward investment needed to sustain healthy domestic production and crucially that needed to meet our shared climate ambitions. The threshold for Government action shouldn’t be triggered by imminent business collapse. Energy intensive foundation industries underpin critical UK supply chain resilience. They also provide well paid employment in UK areas that need good jobs to level up geographical disparity. Once lost, they will not return.”
EIUG are calling on Government to rethink their approach by taking action to bolster the currently limited EII support package. Furthermore, the second triggering of the Cost Containment Mechanism must be used to correct carbon price escalation in the immature UK Emissions Trading System. EIIs need a competitive operating environment and EIUG are keen to work with Government to enable this.
EIUG Contact: Director – Energy Intensive Users’ Group ([email protected]
Notes to editors:
The EIUG represents the UK’s Energy Intensive Industries (EIIs) including manufacturers of steel, chemicals, fertilisers, paper, glass, cement, lime, ceramics and industrial gases. EIUG members produce materials which are essential inputs to UK manufacturing supply chains, including materials that support climate solutions in the energy, transport, construction, agriculture and household sectors. They add an annual contribution of £29bn GVA to the UK economy and support 210,000 jobs directly and 800,000 jobs indirectly around the country.
These foundation industries are both energy and trade intensive – remaining located & continuing to invest in the UK and competing globally requires secure, internationally competitive energy supplies and freedom to export without tariff barriers. However, inward investment, growth and competitiveness have been hampered for years by UK energy costs higher than those of international competitors. In some cases, investment, economic activity & jobs have relocated abroad, leading to a subsequent increase in imports.
The Cost Containment Mechanism (CCM) is a tool for the UK ETS Authority to intervene if carbon prices in the UK ETS are elevated for a sustained period. If the CCM is triggered, the UK ETS Authority will consider what intervention, if any, to make. Possible interventions centre around increasing the number of allowances to be auctioned through several methods. The CCM was triggered for the first time in December after the carbon price in the three preceding months exceeded the £52.88 trigger price. At that time the UK ETS Authority chose to take no action. The CCM has been triggered again in January after the the trigger price of £56.58 was exceeded in the three preceding months. The UK ETS Authority is due to announce its decision on any intervention after trading hours on the 18th January 2022.
The EII package comprises of an EII exemption from the policy costs associated with the deployment of renewable energy generation and EII compensation for the indirect cost of carbon resulting from the UK Emissions Trading System and Carbon Price Support, that is passed on in energy bills (see below for more detail).
EII exemption: The UK Government grants an exemption to an energy intensive business if it is part of an eligible sector and if it can pass a business level test. The business level test requires the company to demonstrate that over a 3 year baseline period, its electricity costs are at least 20% of Gross Value Added. It is possible that the current high cost of energy could help businesses pass the business level test but the requirement for three years worth of data mean that the scheme is not responsive enough to help immediately.
EII compensation: This compensation scheme provides only partial compensation to a small number of eligible sectors. The compensation is based on a carbon price of £22/ tCO2, which makes it outdated given the current prices over £70/tCO2. The UK Government granted a one year extension to the current compensation scheme which ends in March 2022. Beyond that there is no certainty over whether any such compensation will be available and to which businesses and sectors.