London, 3 May 2022 – The Energy Intensive Users Group (EUIG) cautiously welcomes the extension of the EII compensation schemes for a further 3 years, but emphasises that most energy intensive industries (EIIs) continue to be ineligible. The increase in compensation by capping the indirect emission cost at 1.5% of a company’s GVA is especially welcome for those who are eligible. This will enable some UK EIIs to compete on a more even playing field and is a welcome step forward for those that remain covered. However, disappointingly, the schemes do not extend to all EIIs at risk of carbon leakage due to indirect emission cost in industrial electricity prices, nor does it close the industrial electricity price gap between Europe and the UK completely or alleviate the increase in gas costs since the autumn of last year. The EIUG therefore continues to call for measures to address escalated gas prices.
The schemes’ eligibility does not extend to all EIIs the EIUG considers at risk of carbon leakage because of indirect emission cost in industrial electricity prices due to the UK Emission Trading Systems (ETS) and the carbon price support mechanism – GB’s unilateral carbon tax. The substantial rise of about 60% in the UK ETS carbon price since its introduction last year and its expected far higher future level that originally estimated, will increase indirect emission cost significant more, thereby putting more EIIs at risk of carbon leakage. The EIUG also notes the significant increase in the eligibility thresholds compared to those in the consultation of June last year. The EIUG calls on Government to publish its analysis underpinning eligibility, a justification for increasing the eligibility thresholds set out in the consultation and, if necessary, extend eligibility.
The EIUG agrees with the Government that the current level of subsidy intensity is not always sufficient to fully mitigate the risk of carbon leakage. The EIUG cautions about introducing more significant conditions to the schemes though, as these would increase administrative burdens or may even defeat their purpose but will want to work with BEIS to agree any appropriate measures and what a template for a decarbonisation plan would look like.
The EIUG also welcomes the recognition of the impact of Covid-19 by allowing companies in eligible sectors to exclude pandemic years 2020/21 and 2021/22 for the reference period.
However, while it is a step in the right direction for some EIIs, the schemes do not completely address the huge underlying increases in energy costs businesses, and in particular EIIs, are facing since the autumn last year. The EIUG is looking forward to working with Government to introduce further measures to reduce industrial electricity and gas prices, such as increasing the renewable obligation exemption to 100%.