Guidance

Energy-intensive industries: compensation for indirect costs of energy and climate change policies

Government is compensating businesses most at risk of carbon leakage, to help offset the cost of energy and climate change policies.

Overview of the compensation scheme for energy-intensive industries

Policies aimed at reducing carbon emissions are going to impact upon the bills faced by industrial consumers. This will have the greatest effect on those industries that use the most electricity, leading to a risk that investment in the UK is lost – known as carbon leakage. The government intends to compensate those businesses most at risk of carbon leakage, to help offset these increased costs.

In his Autumn Statement on the 29 November 2011 the Chancellor announced that the government intends to implement measures to reduce the impact of policy on the costs of electricity for the most electricity-intensive industries, beginning in 2013 and worth around £250 million over the Spending Review period.

As part of this the government has committed to:

The government also committed to explore options for reducing the impact of electricity costs on electricity-intensive industries as a result of electricity market reform policies where this has a significant impact on their competitiveness, subject to value for money and state aid considerations.

To support this, in March 2012 BIS and the Department for Energy and Climate Change (DECC) launched compensation for the indirect costs of the Carbon Price Floor and EU Emissions Trading Scheme (ETS). This asked companies and trade bodies to engage actively and share information and data on their electricity-intensity, in order to help government target compensation effectively. It closed on 4 May 2012.

In October 2012 BIS and DECC launched a consultation on a proposal setting out the eligibility and design of the scheme to compensate energy-intensive industries for the indirect costs of EU ETS and the Carbon Price Floor. See the Energy intensive industry compensation consultation.

The consultation closed on the 21 December 2012. The government has analysed the responses to the consultation and published its response on 20 May 2013.

Government has also published Guidance for energy intensive industries applying for compensation.

The Parliamentary Environmental Audit Committee (EAC) undertook an inquiry into the Energy Intensive Industries Compensation scheme. BIS Ministers attended an EAC hearing alongside BIS and DECC officials on 4 December 2012. The EAC published their findings in their report on 4 January 2013. The government published their response to the Committee on 20 May 2013.

The design of the carbon price floor scheme will be announced later this year.

The government has also committed to explore options for reducing the impact of electricity costs on electricity-intensive industries as a result of electricity market reform policies, where this has a significant impact on their competitiveness. This is also subject to value for money and state aid considerations. For more information on EMR, visit the EMR page on the DECC website.

Contact

If you have a question about the package please contact us: energyintensiveindustries@bis.gsi.gov.uk.

Documentation

There are a number of documents and reports that help to explain the role of energy intensive industries as we move to a green economy and the impact that energy and climate change policy has on them. This page will be regularly updated with documentation relevant to energy intensive industries.

Energy-Intensive Industries exemption

We are seeking to exempt energy intensive industries from the costs of Contracts for Difference (CfDs), subject to consultation and state aid approval. See the consultation: Electricity market reform: ‘Contracts for Difference’ costs exemption eligibility

Energy-Intensive Industry (EII) Sub-Group of the Green Economy Council

The Green Economy Council created the Energy-Intensive Industries Group. Its original purpose was to bring together evidence on how energy-intensive industries are affected by energy and climate change policies and was tasked with coming forward with ideas for policy proposals.

This led to developing the Energy-Intensive Industries package announced by the Chancellor in his 2011 autumn statement. The role of the group remains to support the work of the Council by:

  • advising on issues for energy-intensive industries around green and climate change policies, including, issues around competitiveness, business opportunities and challenges, so that the government’s strategic approach reflects short, medium and long term needs of businesses
  • discussing and, where appropriate, identifying action for energy-intensive industries
  • acting as a mechanism for energy-intensive industries to bring forward issues relating to the green economy which affect business, including views on what further government policies are needed to ensure the development of the green economy and to help green growth
  • supporting the development of the Energy-Intensive Industries Package by informing the proposal for carbon price and EU Emissions Trading Scheme compensation
  • reporting at regular intervals to the Green Economy Council on the work of the group

Membership

The Group’s members are drawn from government and the Council. Current industry members of the sub-group are:

Green Economy Council – EII sub Group Organisation
Stephen Mayne CBI
Philip Pearson TUC
Rob Sneddon Community Union
Jeremy Nicholson Energy Intensive Users Group
Gareth Stace EEF
Diana Montgomery Construction Products Association
Nick Sturgeon Chemicals Industry Association
Tim Morris Tata Steel
Steven Schofield Shell
Martin Casey Cemex
John Sandford Wienerberger
Tony Smith Pilkington UK
Andrew Mackenzie Ineos

Notes of the meetings

23 April 2013

Members discussed the compensation for the indirect costs of EU ETS and the carbon price floor. They also discussed:

  • the exemption from EMR Contracts for Difference
  • the mineralogical and metallurgical exemption from the Climate Change Levy announced in the Budget
  • the EU Commission’s Carbon Leakage Review

15 February 2013

Members discussed some of the comments arising from the consultation on the compensation for the indirect costs of EU ETS and the carbon price floor.

Members also discussed work on the sector by sector roadmaps project for key energy intensive industry sectors.

Members were updated on:

  • the exemption from the EMR Contracts for Difference
  • back-loading of EU ETS allowances
  • the EU Commission’s Carbon Leakage Review

11 September 2012

Members discussed the upcoming consultation on compensation for the indirect costs of EU ETS and the carbon price floor. Members heard that the state aid pre-notification for the compensation measures would be sent to the Commission by the end of September. There was an update on work on an exemption from the costs of EMR feed-in-tariffs.

Members discussed the possible implications of the proposal to simplify or scrap the Carbon Reduction Commitment (CRC).

There was an update on the progress of the upcoming energy-efficiency strategy.

3 July 2012

Members agreed the terms of reference and membership of the Energy-Intensive Industry Sub-group of the Green Economy Council.

There was an update on the Green Investment Bank and members heard an update on the proposals for compensation for the indirect costs of the carbon price floor and EU ETS.

Government will consult on the EII package in late summer. Members also heard an update on the process of providing and exemption from EMR Feed-In Tariff scheme (FITS) for EIIs.

BIS outlined the timeframe for publishing ‘An international comparison of energy and climate change policies impacting energy-intensive industries in selected countries’.

Members discussed the ongoing Climate Change Agreement target negotiations.

The TUC and Energy Intensive Users Group (EIUG) presented their report on the value of EIIs to the UK supply chain.

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