UK announces fuel exemption for energy-intensive industries

Energy-intensive industries are to be exempt from upcoming fuel charges designed to fund investment in low-carbon power generation, the government has announced.

Under the Energy Bill to be introduced to Parliament today, energy consumers are to pay additional charges to fund the “contracts for difference” that will guarantee builders of nuclear and renewable power plants a minimum price for the electricity they produce.

But the business (BIS) and energy (DECC) departments are considering how much of an exemption to offer energy-intensive industries such as steel, chemicals or paper manufacturing in order to prevent them from being driven out of Britain by higher energy bills.

The manufacturers’ organisation EEF welcomed the announcement but said UK-based energy-intensive industries weren’t out of the woods yet as the size of the exemption had not yet been determined, and that firms were already set to pay a much higher price for energy through other charges and levies.

Energy and climate change secretary Ed Davey said in a statement: ‘Decarbonisation should not mean deindustrialisation. Energy-intensive industries are an important part of the UK economy, in terms of economic output and employment throughout the supply chain.

‘There would be no advantage — both for the UK economy and for global emissions reductions — in simply forcing UK businesses to relocate to other countries.

‘The transition to the low-carbon economy will depend on products made by energy-intensive industries — a wind turbine, for example, needing steel, cement and high-tech textiles. This exemption will ensure the UK retains the industrial capacity to support a low-carbon economy.’

DECC and BIS will run a consultation in 2013 once the proposed exemption has been further developed. The exemption will also require state-aid clearance from the European Commission.

Jeremy Nicholson, director of EEF’s Energy Intensive Users Group, told The Engineer: ‘We have to play out part in cutting carbon emissions but this won’t be possible in a global trading environment if costs get out of hand. We want to reduce emissions not move them to someone else’s balance sheet.’

Research carried out earlier this year by ICF International based on DECC’s estimates found that energy intensive industries in the UK would be paying around an extra £28 per MWh for its energy by 2020 as a result of climate change policies including emissions trading and renewable energy measures – one of the highest figures among the world’s largest economies.

Nicholson added that it was in energy intensive industries’ interests to improve energy efficiency and that existing financial incentives such as a discount on the climate change levy were already encouraging them to make changes that would cut emissions.

In addition to exemption from the new charges, a separate £250m scheme to compensate certain energy-intensive industries for additional costs associated with the Carbon Price Floor and EU Emissions Trading Scheme is already the subject of a current consultation.

The government’s Energy Bill is designed to use the contracts for difference to ensure the substantial investment in the UK’s energy infrastructure needed to replace aging power plants and cut carbon emissions. DECC has also launched a consultation on ways to reduce demand for energy.

Dame Sue Ion, fellow of the Royal Academy of Engineering, said: ‘Contracts for difference will be struck in the future so there is still a way to go to give investors the confidence they need that the strike price across a range of technologies will make investment attractive to proceed.

‘Investors need certainty more than anything else if we are to attract the massive amount of capital needed to refresh our infrastructure. The UK has to be seen as an attractive market otherwise companies will move their funds to other countries offering a more stable and rewarding environment.

‘The potential exemption for energy intensive industries is really important and means that Government has finally recognised that ‘you can’t leave it all to the market’ (otherwise we would just be exporting more manufacturing jobs), that some industries are part of a national strategic requirement and that manufacturing industry jobs matter.’