Financial Assistance to Industry

Amanda Solloway Excerpts

Monday 7th December 2020 General Committees

[The Chair]

Before we begin, the Chairman of Ways and Means has asked me to remind Members to observe social distancing and to sit only in places that are clearly marked. I think everybody is doing that, so very well done. Hansard colleagues to my left would be most grateful if Members could send their speaking notes to [e-mail].

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Amanda Solloway)]

I beg to move,

That the Committee has considered the motion, That this House authorises the Secretary of State to undertake to pay, and to pay by way of financial assistance under section 8 of the Industrial Development Act 1982, sums exceeding £30 million and up to a total of £300 million in respect of compensation for indirect costs of the UK Emissions Trading System or the Carbon Emissions Tax and Carbon Price Support mechanism in each case to British Steel Ltd; Celsa Manufacturing (UK) Ltd; CF Fertilisers UK Ltd; DS Smith Paper Ltd; INEOS Chemical Grangemouth Ltd; INEOS ChlorVinyls Ltd; Kimberly Clark Ltd; Outokumpu Stainless Ltd; Palm Paper Ltd; Runcorn MCP Ltd; SABIC UK Petrochemicals Ltd; Tata Steel UK Ltd; and UPM-Kymmene (UK) Ltd.

It is a great pleasure to serve under your chairmanship, Mr Pritchard. The current scheme to compensate certain energy-intensive industries for indirect emissions costs arising from the EU emissions trading scheme expires at the end of 2020. Ministers in the Department for Business, Energy and Industrial Strategy have agreed to extend the compensation schemes in line with the current framework for a further year, to the end of the next financial year. Under section 8 of the Industrial Development Act 1982, we seek the House of Commons’ approval to pay compensation in excess of £30 million to individual businesses.

The UK will announce either a United Kingdom emissions trading scheme or a carbon emissions tax as a successor to the EU ETS. That means that the motion agreed by the Commons in 2014, providing approval to spend more than the limit in section 8 of the Industrial Development Act, will no longer be valid. That is because the UK has left the EU and will no longer be part of the EU ETS. We are therefore tabling a motion to seek the Commons’ approval to ensure that BEIS can continue to compensate businesses for more than £30 million of indirect costs from the UK ETS or carbon emissions tax and carbon price support mechanism.

Energy-intensive sectors that are eligible for BEIS relief schemes employ around 350,000 workers, and they have a gross value-added of £28.5 billion, or 2% of the UK economy. Their turnover is around £134 billion, and in 2018 their exports totalled around £93 billion, which is 27% of total UK exports. Carbon pricing policies create a cost differential between the UK and other countries, and that increases the risk of carbon leakage. Carbon leakage could occur if, for reasons of cost related to climate policies, businesses were to transfer production or reallocate investment to other countries that have lower carbon pricing policies. That could lead to an increase in global greenhouse gas emissions. The Government have therefore been compensating certain energy-intensive industries for the indirect emissions costs arising from the EU ETS and the carbon price support mechanism since 2013 and 2014 respectively.

In their 2011 autumn statement, the Government announced that, to ensure that manufacturing was able to remain competitive during the shift to a low-carbon economy and to minimise carbon leakage, they would compensate key electricity-intensive businesses to help to offset the indirect emissions cost of the carbon price and the EU ETS. Cost compensation should remain as long as there are differences in low-carbon policy costs between the UK and international competitors. The Government should ensure that businesses can plan on the basis that that will be the case, while keeping the precise coverage level and conditionality of compensation and exemptions under review. The main beneficiaries are certain energy-intensive industries, particularly companies in the steel, paper and pulp chemical sector. The compensation is paid from the BEIS budget.

As I have mentioned, section 8 of the Industrial Development Act requires approval by a resolution of the House of Commons for support in excess of £30 million under any one project. In 2014, the Commons approved a motion to increase that limit to £300 million for 13 companies in respect of compensation for the EU ETS and carbon price floor. As we will move to a new scheme—a UK ETS or carbon emissions tax—from 1 January 2021, we are seeking approval from the Commons again.

Without new approval from the House of Commons, my Department would not be permitted to compensate businesses from 1 January 2021. Given the pressure facing businesses from covid-19, preparations for the end of the transition period and the continuation of relatively high UK industrial electricity prices, Ministers have agreed to the continued operation of the compensation scheme for a further year—until the end of the financial year 2021-22.

We will revise the schemes in early 2021 to assess whether—and if so, how—to continue the compensation scheme for the longer term. By that time, we will have more clarity about our future relationship with the EU carbon pricing policy. The UK’s subsidy control regime has broader Government objectives, such as the delivery of the covid-19 response and net zero commitments.

The Government recognise that energy-intensive industries need to play their part in reducing emissions, and we have introduced various policies to help them decarbonise. In the Budget of 2018, the Government announced £315 million for an industrial energy transformation fund to support industrial energy efficiency and decarbonisation projects, to bring energy costs down for industry.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

The Minister is making a very strong case for the motion, but can she set out why some industries in other countries pay less than UK companies for energy? Why is that?

--- Later in debate ---

[Amanda Solloway]

I thank my hon. Friend for that intervention; if I may, I will come to that point in my closing remarks.

As set out in our 10-point plan for a green industrial revolution, our aim is for the UK to develop 5 GW of low-carbon hydrogen production capacity by 2030; that could see the UK benefit from about 8,000 jobs across our industrial heartlands and beyond. It will be supported by a range of measures, including a £240 million net zero hydrogen fund. The financial system outlined in the motion will be of huge benefit to the UK energy-intensive industries most at risk of carbon leakage. It is imperative that we continue to support those industries, which are so vital to the UK economy. I am assured that section 8 of the Industrial Development Act 1982 is the appropriate means by which to make such payments, and I commend the motion to the Committee.

--- Later in debate ---

[Amanda Solloway]

I thank hon. Members for their contributions to the debate. The discussions we have had highlight the value of energy-intensive industries such as steel, chemicals, plastic and cement to the UK.

In response to my hon. Friend the Member for Thirsk and Malton, we do recognise that the UK’s industrial electricity costs are currently higher than those of our competitors. That partly reflects how the costs of electricity systems are distributed across household and industrial customers. For example, German industrial users pay lower electricity prices than UK industrial users, but German households pay higher electricity prices than UK households.

In response to the hon. Member for Greenwich and Woolwich, the operations are under negotiation. Of course we have a long-term commitment to climate change, as indicated in our 10-point plan. The Government are determined to continue to minimise the risk of carbon leakage to help businesses improve their productivity and competitiveness as part of our industrial strategy. Furthermore, we will work with our partners in industry to start deploying hydrogen and carbon capture usage and storage technologies.

At the same time, it is important that we continue to mitigate the cumulative impact of energy and climate change policy costs on energy prices for energy-intensive industries as we make the transition to the low-carbon economy. The Government have taken steps to reduce the impact of energy and climate change policies on industrial electricity prices for key energy-intensive industries in sectors such as steel, chemicals, cement, paper and glass. Between 2013 and 2019, total relief to energy-intensive industries for electrical policy costs was around £1.5 billion to over 220 businesses across the UK. We therefore seek approval to pay sums exceeding £30 million and up to a total of £300 million in respect of compensation for indirect costs of the UK emissions trading system, or the carbon emissions tax and carbon price support mechanism, in each case to 13 companies. I commend the motion to the Committee.

[Mark Pawsey (Rugby) (Con)]

Will the Minister give way?