Carbon Dioxide Supply
Chris McDonald Excerpts(1 day, 16 hours ago)
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The Parliamentary Under-Secretary of State for Business and Trade (Chris McDonald)
This statement provides an update on Government intervention in the supply of carbon dioxide.
On 26 March 2026, in response to risks to supply chains arising from the ongoing conflict in the middle east, the Government directed Ensus UK Ltd to restart production to generate a significant volume of carbon dioxide. This carbon dioxide will be captured and sold to the market for use in food manufacture and preservation, beverage manufacture, energy, healthcare, and other essential applications.
For several months, the Government have been in discussion with Ensus to agree a standby arrangement. Under this arrangement, Ensus is required to maintain the plant in a quiescent state, at modest cost to Government, and keeps it ready to be activated at short notice in the event of a carbon dioxide shortage, or a credible risk of one emerging.
When the Government could have stepped back and let the plant close last year, we stepped in to keep it available. This intervention illustrates the different approach taken by this Government—an active and strategic state prepared to act where it is in the national interest. While previous Governments closed Britain’s gas storage, this Government have repeatedly acted to support our resilience, from saving British Steel from collapse to securing the future of the chemical cracker at Grangemouth. The Ensus intervention is part of that same deliberate pattern.
It forms part of wider Government work to ensure the UK maintains access to critical industrial inputs during periods of global supply disruption, such as the ongoing conflict in the middle east.
The Government are also taking steps to diversify the UK’s long-term carbon dioxide supply, strengthening UK resilience and reducing exposure to future global shocks. We will work with industry to develop and deliver this long-term plan.
My Department will continue to work with industry and relevant lead Government Departments to monitor risks to supply. We will protect taxpayers’ money by operating the plant only for as long as necessary. This is why we have agreed that the plant will operate for an initial period of three months but will be subject to regular review. The Department for Business and Trade will closely monitor the associated spend, which will be reported in DBT’s accounts for 2026-27, with 2025-26 spend also disclosed in the annual report and accounts. If conditions require it, the Government will not hesitate to extend this period and will retain the ability to restart the plant for a longer period as a precautionary measure.
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British Steel
Chris McDonald Excerpts(2 weeks, 5 days ago)
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The Parliamentary Under-Secretary of State for Business and Trade (Chris McDonald)
The Government committed to updating Parliament on British Steel every four sitting weeks for the duration of the period of special measures being applied under the Steel Industry (Special Measures) Act 2025.
The Government’s priority remains to maintain the safe operation of the blast furnaces at British Steel. Government officials are continuing to provide on-site support in Scunthorpe, ensuring uninterrupted domestic steel production and monitoring the use of taxpayer funds.
On funding, the position remains that all Government funding for British Steel will be drawn from existing budgets, within the spending envelope set out at spring statement 2025. To date, we have provided approximately £419 million for working capital, covering items such as raw materials and salaries. This will be reflected in the Department for Business and Trade’s accounts for 2025-26.
We continue to work with Jingye to find a pragmatic, realistic solution for the future of the site. Once a solution is found, we will terminate the directions issued to British Steel under the Act and make a statement on the need to retain, or repeal, the legislation. As we have stated previously, our long-term aspiration for the UK steel sector will require co-investment with the private sector to enable modernisation and decarbonisation and to safeguard taxpayers’ money.
Liberty Pipes Hartlepool sale
We understand that Liberty has run a sales process for their site in Hartlepool, with Corinth Pipeworks announced as the buyer. This is a commercial sale in which Government have not been involved. We welcome the new investment in this site.
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Oral Answers to Questions
Chris McDonald Excerpts(1 month ago)
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Callum Anderson (Buckingham and Bletchley) (Lab)
The Parliamentary Under-Secretary of State for Business and Trade (Chris McDonald)
We are supporting private sector investment in Buckingham and Bletchley by working with partners across the Oxford-Cambridge growth corridor to find new opportunities for businesses. I acknowledge the work of my hon. Friend in launching the Bletchley investment taskforce, which is bringing together private capital and local partners, using infrastructure such as East West Rail to improve connectivity, and working with OxCam partners so that local businesses benefit from innovation, skills and inward investment.
Callum Anderson
As the Minister says, I launched the Bletchley investment taskforce last year to attract the businesses, investments, jobs and apprenticeships that local people need, and we are developing an investment prospectus to deliver that end. Will the Minister meet me and taskforce members to ensure that the Government are working hand in hand with local partners?
Chris McDonald
I congratulate my hon. Friend on his work with the Bletchley investment taskforce. I know that businesses in his constituency, such as Envisics, Carnot and Pulsar, have benefited from the work he has done, and I would be very happy to ensure that he gets a meeting with the relevant Minister.
Frank McNally (Coatbridge and Bellshill) (Lab)
Dave Robertson (Lichfield) (Lab)
The Parliamentary Under-Secretary of State for Business and Trade (Chris McDonald)
I thank my hon. Friend, who is an advocate and champion of businesses in Lichfield. As I am sure he is aware, we are making sure that the UK is the best place in the world to invest by backing priority sectors through our industrial strategy. The advanced manufacturing sector plan will strengthen UK supply chains in sectors such as automotive, aerospace and clean energy industries, ensuring that businesses in Lichfield, such as its manufacturing and logistics businesses, get the skills, technology and new commercial opportunities that they need.
Dave Robertson
The quantum technology sector is hugely important for the UK. We have world-leading researchers and businesses innovating in healthcare, defence and many more industries, but quantum firms tell me that as they grow, they find it harder and harder to secure the investment that they need to commercialise their exceptional ideas. The risk that we face is that they will take their businesses out of the UK in order to seek that investment. That is why I recently established the all-party parliamentary group on quantum technologies to help Members of both Houses to understand this rapidly evolving sector. What can the Government do to ensure that our quantum businesses get the investment that they need to grow here in the UK?
Chris McDonald
I thank my hon. Friend for his work in establishing the all-party parliamentary group on quantum technologies. He is right to identify these technologies as very important for the future, and to put his finger on the particular problem that we have in the UK: while we are brilliant at innovating and investing in research, we have historically struggled with scale-up. That is not something that this Government are prepared to accept. Just as we are investing in critical minerals and automotive connected mobility technologies, we are investing in this area. The British Business Bank is doubling its annual investments to ensure that we can support scale-up and bring forward at least 10 new-to-market growth-stage funds so that we can leverage pension investments and help British businesses to stay and grow in the UK.
Dr Andrew Murrison (South West Wiltshire) (Con)
An increase in private sector investment is being seriously held back by the failure of the Government to publish their defence investment plan. Has the Minister any idea when this much-awaited document will hit the streets?
Chris McDonald
The Government recognise the importance of the defence industrial plan, which will be brought to the House as soon as it can be. On private sector investment, £10 billion of investment came in from the regional summits, and £79 billion of investment was identified in the last industrial strategy quarterly report. Investors are voting with their money, and they are investing in the UK.
Dame Harriett Baldwin (West Worcestershire) (Con)
There was a new private sector investor in the Royal Mail last year. As we heard yesterday in the House, the regulator has let the universal service obligation slip, so will the Minister update the House on how his colleague’s meeting with the regulator went yesterday?
Chris McDonald
The Minister responsible for the Post Office and the Royal Mail, my hon. Friend the Member for East Renfrewshire (Blair McDougall), is sitting beside me. Just yesterday, he spent 90 minutes in the House answering questions from Members who have had problems with the service across the whole of the country; I have seen such problems in my constituency as well. The Government are clearly not happy with the level of service from the Royal Mail, and the shadow Minister will hear a full response to Question 15, when my hon. Friend will stand at the Dispatch Box and tell her everything that she needs to know about that particular meeting.
The Parliamentary Under-Secretary of State for Business and Trade (Chris McDonald)
My hon. Friend is right: Cornwall has loads of critical minerals. They will be beneficial in driving not only the UK economy but great businesses and export opportunities. As we have said before, we want companies to scale and grow in the UK, to be headquartered and listed in the UK, and to provide great jobs in the UK. That is why I am working with my hon. Friend and his Cornish Labour colleagues, and with the industry and capital markets in the UK, to corral capital into Cornish critical minerals.
Martin Vickers (Brigg and Immingham) (Con)
Since part of Grimsby falls in my constituency, I join my Member of Parliament, the hon. Member for Great Grimsby and Cleethorpes (Melanie Onn), in celebrating Great Grimsby Day. I recently attended a meeting with the hon. Member for Scunthorpe (Sir Nicholas Dakin) and a group of potential investors in the steel industry, who I know have made approaches to the Secretary of State. Can he give me an assurance that all potential private sector investments in the industry will be given serious consideration?
Brian Leishman (Alloa and Grangemouth) (Lab)
The sudden shift in steel import policy has created uncertainty for firms that have invested heavily in expanding their operations based on previously stable trading conditions. Will the Secretary of State commit to working with affected businesses in Scotland, including Central Rebar in Alloa, and provide clarity to prevent further disruption and to ensure that companies vital to the Scottish industrial base are not placed at a competitive disadvantage?
Chris McDonald
The Government are incredibly concerned about the gradual erosion of UK domestic steel production compared with imports. I ask my hon. Friend to wait a very short time until the steel strategy is published, and after that he might like a further discussion with me.
Max Wilkinson (Cheltenham) (LD)
High streets are a key concern for us all in this House. On the Promenade in Cheltenham we have Cavendish House, which was a cherished retail centre for 200 years. [Interruption.] The hon. Member for Rhondda and Ogmore (Chris Bryant) remembers it. Now it is empty; Mike Ashley’s Sports Direct left and now we have a big, empty building owned by Canada Life. Does the Minister agree that the big pension and investment companies need to pay more respect to our high streets and bring forward planning applications to redevelop and regenerate as soon as they possibly can? We should not be left waiting for as long as we have been.
Department for Business and Trade
Chris McDonald Excerpts(1 month, 1 week ago)
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The Parliamentary Under-Secretary of State for Business and Trade (Chris McDonald)
I thank everyone who has participated in today’s debate. I particularly thank my right hon. Friend the Member for Birmingham Hodge Hill and Solihull North (Liam Byrne) for opening the debate, as well as for his work as Chair of the Business and Trade Committee, and the members of that Committee who have spoken in today and produced a number of reports in this Parliament. I have very much enjoyed reading those reports, and they have been drawn on extensively during this debate. Members have made some incredibly important and pertinent speeches, and in the time available, I will try to trot through some of the answers at pace. Forgive me in advance if I do not manage to respond to everyone: I am happy to write and fill in any detail that might be missing afterwards.
I will start with the overarching strategy of the Department and why it has produced these estimates. The Department has reset our programme of spend around our growth mission and our industrial strategy. Our major investments in key sectors, combined with efforts to attract private capital, will ensure that taxpayers’ money is used effectively. At the same time, we are ensuring that the right resources are going into delivering our small business plan, creating the right conditions for small businesses to grow. I will say more on that shortly, as I know that many Members are concerned about small businesses.
I also need to explain, as it was mentioned by several Members, the rationale behind the in-year budget increase. It is primarily for three activities—British Steel, the Post Office and the British Business Bank. There has been a £1.351 billion increase in the annual managed expenditure budget, recognising that additional provisions are needed for postmaster compensation. That covers funding for the capture redress scheme, and for redress to family members of postmasters impacted by Horizon. There is a £626 million increase in capital department expenditure limits, largely for two reserve claims. The first is £375 million of funding for the Department’s support for British Steel, and the second is £200 million for growth sector businesses via the British Business Bank, to help more firms to scale up and become home-grown success stories. The reserve claim will ensure that we do not unnecessarily restrict the bank.
The shadow Minister queried why the Department is coming back with estimates, as it also did last year. Fundamentally, that is partly built into the structure of the British Business Bank. In order to provide the bank with the level of in-year flexibility that it needs to work with fund managers and draw down investment in businesses, it is important that the bank is not restricted at the outset and that we do not overcompensate or undercompensate the bank. That is one of the primary reasons why the Department is an outlier among the estimates. It is actually a sign of a well-functioning Department and a very well-functioning element of the British Business Bank.
I turn to some of the specific items. Given the scale of the support for the steel industry, I shall start there. It was raised by the Chair of the Select Committee and many other Members. Our steel industry is of course strategically important as part of British heavy industry, supporting the UK’s industrial base, our construction sector and our national and economic security, as we heard in the earlier estimates debate on the Ministry of Defence. Transforming the steel sector is essential for securing a competitive, modern and sustainable industrial base, ensuring the UK can meet its long-term net zero commitments while maintaining critical domestic capability.
Our commitment to the sector is evident in the intervention we made in April last year at Scunthorpe to ensure uninterrupted steel production and avoid the permanent and disorderly closure of the UK’s last operating blast furnaces, the Queen Anne and the Queen Bess in Scunthorpe. Government officials are continuing to provide on-site support in Scunthorpe, ensuring uninterrupted domestic steel production and carefully monitoring the use of taxpayer funds.
Several hon. Members mentioned the steel strategy, including my hon. Friend the Member for Tipton and Wednesbury (Antonia Bance). We have a commitment to publish the strategy early in 2026. We had hoped to publish it before Christmas but we thought it best to publish it alongside the trade measures following changes in trade arrangements. We have worked carefully with the industry, UK Steel and the trade unions, and I hope that we will bring the proposals on trade and on the steel strategy to the House in a very short time.
I commend the management, the trade unions and the workforce at Scunthorpe on their diligence in this period. In difficult circumstances, they have achieved an excellent health and safety performance in stabilising operations. I also commend the commercial team at Scunthorpe for their high-speed rail order from Turkey. I think we can all take great pleasure in steel exports from the UK to Turkey. The shadow Minister was concerned that the Government did not have the know-how to support the industry. I can tell him that, having worked for 29 years in the industry myself, I am exercising very careful oversight of the production and operational activities of British Steel.
Several Members queried the numbers. To date, the Government have spent approximately £370 million on support for British Steel, covering items such as raw materials, salaries and unpaid bills. I understand the concern, but I note that that is still less than half the amount that the previous Government spent last time British Steel was in great difficulties. They simply flipped the business out to Greybull, a company that could not even run Rileys snooker halls without Rileys going into administration. This Government are developing a steel strategy, and planning to ensure that we maintain our ironmaking capacity at Scunthorpe as well.
More broadly, the Government are committed to providing up to £2.5 billon to support the UK steel industry. Funding and financing for steel companies is being delivered via the National Wealth Fund and direct support, including an additional £500 million grant for Tata Steel at Port Talbot and support for the official receiver’s sale process for Speciality Steel’s UK sites in Rotherham and Stocksbridge. Separately, the Government have committed an additional £420 million to new investment in Sheffield Forgemasters to expand capacity further as a direct result of the AUKUS submarine deal, bringing our total investment in Forgemasters to over £1.3 billion.
That was the first item; the second is the Post Office. I should begin by acknowledging the sub-postmasters who were impacted by the Horizon scandal, and, again, thanking my right hon. Friend the Member for Birmingham Hodge Hill and Solihull North and the members of his Committee for their support and their challenges on these issues. The Government welcome that scrutiny. My right hon. Friend said that the Committee would publish a new report in the coming days, and we stand ready to review and respond to it.
I can confirm that we have now paid redress to more than 11,300 postmasters and made redress payments of £1.2 billion. My hon. Friend the Member for Ellesmere Port and Bromborough (Justin Madders) and the Chair of the Committee were concerned about Fujitsu, as am I. Fujitsu has accepted that it bears a moral responsibility for what has happened, and has expressed its willingness to contribute financially. Let me make it clear that Fujitsu will have to pay. As for the amount that it will have to pay, it is important for the inquiry to complete its work and publish all the volumes of its report so that we can establish the level of compensation.
In respect of small business support, a number of issues were raised in connection with energy efficiency and energy costs. My hon. Friend the Member for Tipton and Wednesbury mentioned the British industrial competitiveness scheme. There are a number of other kinds of support for energy efficiency in small businesses, but I have already committed myself, at the Dispatch Box, to looking further at what can be done in that regard. The hon. Member for Maidenhead (Mr Reynolds) asked what we could do for Laura. I would direct Laura towards our plan for small businesses, which includes legislation on late payments, a business growth service and tailored support for high streets, which, hopefully, she will find helpful.
Catherine Atkinson (Derby North) (Lab)
We are seeing fantastic and significant investment and regeneration in our city centre in Derby, but it still bears the scars of 14 years of austerity and neglect. Will the Minister tell us a bit more about how the Government are helping businesses to grow?
Chris McDonald
Look out for our plan for high streets, which will be published shortly.
My hon. Friends the Members for Stoke-on-Trent Central (Gareth Snell) and for Stoke-on-Trent South (Dr Gardner) mentioned the gas-intensive nature of ceramics businesses. I am aware of that, and am looking at it very carefully.
I hope that I have been able to trot through some of the main issues. I now want to leave some time for the Chair of the Committee to make some concluding remarks.
British Steel
Chris McDonald Excerpts(1 month, 2 weeks ago)
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The Parliamentary Under-Secretary of State for Business and Trade (Chris McDonald)
The Government committed to updating Parliament on British Steel every four sitting weeks for the duration of the period of special measures being applied under the Steel Industry (Special Measures) Act 2025.
The Government’s priority remains to maintain the safe operation of the blast furnaces at British Steel. Government officials are continuing to provide on-site support in Scunthorpe, ensuring uninterrupted domestic steel production and monitoring the use of taxpayer funds.
On funding, the position remains that all Government funding for British Steel will be drawn from existing budgets, within the spending envelope set out at spring statement 2025. To date, we have provided approximately £370 million for working capital, covering items such as raw materials and salaries. This will be reflected in the Department for Business and Trade’s accounts for 2025-26.
We continue to work with Jingye to find a pragmatic, realistic solution for the future of the site. Once a solution is found, we will terminate the directions issued to British Steel under the Act and make a statement on the need to retain, or repeal, the legislation. As we have stated previously, our long-term aspiration for the UK steel sector will require co-investment with the private sector. Across the steel sector, private sector involvement enables modernisation and decarbonisation and safeguards taxpayers money.
Impact assessment relating to the Steel Industry (Special Measures) Act 2025
The impact assessment relating to the Steel Industry (Special Measures) Act 2025 published on 22 January focuses on the rationale and impacts of the Act, namely providing optionality to address the risk that financially distressed owners could trigger unmanaged closures of major UK steel assets leading to irreversible loss of domestic steelmaking capability.
The IA can be accessed here: https://www.gov.uk/government/publications/steel-industry-special-measures-bill-2025-final-impact-assessment
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Draft Energy-Intensive Industry Electricity Support Payments and Levy (Amendment) Regulations 2026
Chris McDonald Excerpts(2 months, 1 week ago)
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The Parliamentary Under-Secretary of State for Business and Trade (Chris McDonald)
I beg to move,
That the Committee has considered the draft Energy-Intensive Industry Electricity Support Payments and Levy (Amendment) Regulations 2026.
The draft regulations were laid before the House on 12 January 2026. I acknowledge the Joint Committee on Statutory Instruments, which provided a helpful review of the regulations but did not draw them to the special attention of this House or the other place, and the Secondary Legislation Scrutiny Committee, which has reported the regulations as an instrument of interest to Members.
The draft regulations aim to deliver one of the Government’s commitments in the modern industrial strategy: to increase electricity price support to energy-intensive industries through the British industry supercharger. Energy-intensive industries include foundational manufacturing sectors that are critical to the UK’s economic security and the delivery of the modern industrial strategy. They include steel, chemicals, cement, electrical components and gigafactories.
The British industry supercharger was introduced in 2024 to reduce the electricity price gap between Great Britain and comparable industrial countries in western Europe, such as France, Germany and the Netherlands. The supercharger is made up of three measures: the energy-intensive industries exemption scheme, which offers 100% exemption from contracts for difference, the feed-in tariff and the renewables obligation electricity policy levies; the capacity market exemption, which offers 100% exemption from the costs of funding the electricity capacity market; and the network charging compensation scheme, which provides 60% compensation on an energy-intensive industry’s electricity network costs.
While the supercharger package of measures has been successful, the Government recognise that there remains an electricity price gap between Great Britain and comparable industrial economies in Europe, which places British energy-intensive industries at a competitive disadvantage while increasing the risk of carbon leakage and the offshoring of vital manufacturing jobs and investment. That is why the Government’s modern industrial strategy included the commitment to increase from 60% to 90% the level of relief offered by the network charging compensation scheme. That will reduce electricity bills for currently supported energy-intensive industries by a further £7 to £10 per megawatt-hour, bringing the total reduction to £65 to £87 per megawatt-hour, and will deliver up to £420 million of electricity price support per annum.
The draft regulations aim to further close the electricity price gap, ensuring that British foundational manufacturing can thrive and grow. They will help to ensure that the 550 companies that currently benefit from the scheme will continue to attract new investment and preserve well-paid jobs and crucial supply chains across Britain’s manufacturing heartlands. The draft regulations will amend the Energy-Intensive Industry Electricity Support Payments and Levy Regulations 2024 to make provision for increasing the level of relief offered through the network charging compensation scheme.
In conclusion, the draft regulations will help to reduce electricity costs for the most energy and trade-intensive industries such as steel, chemicals, cement and battery manufacture. They will help to reduce the risk of carbon leakage by retaining critical manufacturing investment and jobs in Britain. I commend them to the Committee.
Chris McDonald
It is very pleasing to see a reasonable level of support across the Committee, not only for the draft regulations but for our energy-intensive industries. Perhaps I can answer the question from the right hon. Member for Melton and Syston while talking at length about ceramics, which my hon. Friend the Member for Stoke-on-Trent Central and I both enjoy.
A general review of eligibility for the supercharger is planned for this coming year, which would certainly be an opportunity to look at eligibility of other sectors. I have already said, and am happy to repeat to my hon. Friend, that I have tasked my officials with looking carefully at the case for the inclusion of the ceramics industry. Qualification for the supercharger system currently relates both to energy intensity and to the risk of export leakage. As my hon. Friend said, the ceramics industry is gas-intensive, which is possibly why it has previously fallen below the threshold, but of course we want the ceramics industry to electrify. The difference between gas and electricity costs is a concern for the industry.
My hon. Friend also asked about the funding of the scheme. To be clear, we do not expect any increase in non-domestic or domestic bills as a consequence of the change. This is partially a result of the change in the renewables obligation and feed-in tariff schemes, from the retail prices index to the consumer prices index. Essentially, we propose to pay for the change by bearing down on costs in the system.
The hon. Member for South Cambridgeshire talked very well about the challenges for small businesses. Over the past few months, as she will understand, I have laid out improvements in energy costs for energy-intensive industries, through the supercharger, and for manufacturing more generally, through the British industrial competitiveness scheme. Some of those manufacturing businesses will be small businesses, but I appreciate that she was talking about the small business sector more widely. I, too, am concerned about that, but I am leaving no stone unturned in looking at how we can help all businesses across the country with their energy costs. That takes me back to the general point that the shadow Minister made about the level of uncompetitive energy in the UK. Fundamentally, this policy is designed to provide a measure of support as a consequence.
I am grateful that the shadow Minister welcomes the draft regulations. He described energy-intensive industries as the backbone of our economy. I could not agree more. Having worked in the steel industry for a long time, it is so nice to hear such warm words, even though the Opposition are perhaps late converts. The former Prime Minister scrapped industrial strategy; he was not keen on it, although a previous Conservative Prime Minister was, which is nice. Maybe we have consensus on industrial policy now; that would be very pleasing to see.
The shadow Minister described the environment around energy as hostile. I thank him for laying out so clearly the failure of his Government’s energy policy. Ultimately, this is a result of our reliance on gas in the system. The Opposition might not be keen to acknowledge it, but not only are solar, onshore wind and offshore wind the cheapest forms of energy available to us, but they create demand for foundational industries and offer great jobs. We have outlined an increase of 400,000 jobs in clean energy industries—good jobs for people across the whole of the country. Of course, that home-grown energy offers energy security too.
Many Members across the House—not only those on the Government side, but Liberal Democrats—are content to bask in the warm glow of solar power, onshore wind and offshore wind. I appreciate that the Opposition are feeling a chill breeze up their right flank and are tacking across to the climate-denying policies of Reform, but that cannot be the basis on which the country’s energy policy is determined. We must focus instead on low-cost energy for consumers and industry, on energy security and on good jobs, and that is what renewable energy delivers. Through this mechanism, we will ensure that our energy-intensive industries continue to be competitive in Europe.
Question put and agreed to.
Draft Greenhouse Gas Emissions Trading Scheme (Amendment) (Extension to Maritime Activities) Order 2026
Chris McDonald Excerpts(2 months, 1 week ago)
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The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Chris McDonald)
I beg to move,
That the Committee has considered the draft Greenhouse Gas Emissions Trading Scheme (Amendment) (Extension to Maritime Activities) Order 2026.
I am grateful to you, Sir Jeremy, and to the Committee for its consideration of the draft order, which was laid before Parliament on 13 January 2026. The UK ETS was established under the Climate Change Act 2008 by the Greenhouse Gas Emissions Trading Scheme Order 2020 as a UK-wide greenhouse gas emissions trading scheme contributing to the UK’s emissions reduction targets and net zero goal. The scheme was established to increase the climate ambition of the UK’s carbon pricing policy, while protecting the competitiveness of UK businesses.
The scheme is run by the UK ETS Authority, a joint body involving the UK Government and the devolved Governments. Under the scheme, a cap is set on the amount of certain greenhouse gases that may be emitted by the sectors it covers, and the cap is reduced over time so that total emissions must fall. Under the UK ETS, operators participating in the scheme are required to monitor, report on and surrender allowances in respect of their greenhouse gas emissions.
The scope of the UK ETS is being expanded to maritime activities as part of the Government’s strategy of decarbonising all sectors of the UK economy to meet our net zero target by 2050. The draft order is an effective lever to reduce emissions and delivers on a key commitment in the UK’s maritime decarbonisation strategy. We expect it to help to overcome key barriers to maritime decarbonisation by incentivising low-carbon fuels, fuel-efficient technologies and fuel-efficient operating practices.
The statutory instrument amends the legislation that gives effect to the UK ETS. It expands the scheme to cover carbon dioxide, methane and nitrous oxide from domestic voyages and in-port activities in the UK. Effective from 1 July 2026, maritime operators are required to participate in the scheme and allowed to bid at auction for UK allowances. The instrument will apply to ships of 5,000 gross tonnage and above, but a small number of exemptions apply, such as for Government ships, including military and law enforcement ships, and ferries operating services to Scotland’s islands and peninsulas.
The provisions set out in the instrument require the maritime operator of a ship—either its registered owner or the company responsible for its compliance with the international safety management code—first to obtain an emissions monitoring plan in which it will document the processes used to ascertain their ships’ emissions. For each scheme year, maritime operators will be expected to monitor, independently verify and report their maritime emissions to the relevant regulator, and surrender an equivalent level of allowances.
The instrument also introduces the concept of surrender deductions, reducing by 50% the number of allowances for surrender in respect of voyages between Great Britain and Northern Ireland, to deliver equivalence in carbon pricing on routes across the Irish sea. Operators will be assigned to a UK ETS regulator based on the location of their registered office or place of residence. This is the same approach as for aircraft operators. One emissions monitoring plan will cover all the ships for which the maritime operator is responsible, and emissions must be monitored using one of the four methods prescribed in the instrument.
Maritime operators will be required to report emissions from all ships for which they are responsible through an annual emissions report, which must be submitted to the regulator on or before 31 March in the year following the scheme year to which it relates. Maritime operators have an obligation to verify their annual emissions report. The verification must be carried out by an impartial and accredited verifier, independent from the maritime operator. If satisfied, the verifier will draft a verification report, which will be submitted to the regulator alongside the annual emissions report.
Maritime operators will also be required to surrender a level of allowances equivalent to their emissions by 30 April in the year following the scheme year. However, the instrument introduces the concept of double surrender, whereby the date by which allowances must be surrendered in relation to the first scheme year, 2026, is 30 April 2028 and not 30 April 2027, as would otherwise be the case.
These changes follow comprehensive engagement and consultation with stakeholders. The UK and devolved Governments carried out a consultation in 2022 on the development of the UK ETS, including whether to include maritime activities in the scheme. A second consultation ran between 28 November 2024 and 23 January 2025, seeking views on the details of how maritime would be incorporated in the UK ETS from 2026. The relevant responses to those consultations were summarised in the interim and main authority responses published in July and November 2025, respectively.
The expansion of the UK ETS to cover maritime activities will support its role as a fundamental pillar of the UK’s climate policy. It plays a key part in the Government’s strategy of decarbonising all sectors of the UK economy to meet our net zero target by 2050. It also delivers on a key commitment within our maritime decarbonisation strategy, and I commend the draft order to the Committee.
Chris McDonald
I thank all right hon. and hon. Members for their contributions to the debate. I hope to be able to respond to them.
We heard, from the shadow Minister, the hon. Member for West Aberdeenshire and Kincardine, the Opposition’s clear objections to the emissions trading scheme. We also heard them last week, in a statutory instrument debate about the emissions trading scheme and the future introduction of the carbon border adjustment mechanism. This is clearly a significant change in policy from the Opposition, as they line themselves up with the climate deniers in the hope that they might scrounge some votes back from Reform, but—[Interruption.] It absolutely is a desperate measure.
The shadow Minister talks about protection for industry. We discussed that extensively in this Committee Room last week. Of course, the carbon border adjustment mechanism is precisely there to protect British industry from unfair competition from imports from more polluting industries in countries without such regulations. The Opposition’s objections to the carbon border adjustment mechanism, which we heard in this room last week, actually put British industry on the block. I do wonder whether they have fully thought through their policy, because when the statutory instrument went to the Lords, their spokesperson was not clear about whether the Opposition opposed the carbon border adjustment mechanism. Perhaps the shadow Minister might want to say whether that is Opposition policy.
Chris McDonald
No, the shadow Minister does not. Well, perhaps he needs to think about it a bit longer.
The shadow Minister talked about the administrative burden placed on maritime companies, which is of course something of which the Government are very conscious. He mentioned some of the information that would need to be recorded, such as port of departure, fuel use and so on. I do not know when he last spoke to somebody who actually operates a vessel, but a lot of this information is routinely recorded. Perhaps his ignorance of maritime operations is second only to his ignorance of the United Kingdom.
Andrew Bowie
As somebody who served in the Royal Navy for four years after I left school, I have full awareness of maritime operations and of the importance of our United Kingdom. I was talking about the gross unfairness of this legislation and the impact it is having on some communities around this kingdom, whether on the Isle of Wight or in Northern Ireland. The Minister has the audacity to claim that CBAM is protecting British industry, when his Government’s policies are doing more to undermine British industry than any policy of any Government in recent history. The deindustrialisation we are seeing in this country is something of which his party, which still laughably calls itself the Labour party, should be utterly ashamed. I ask him to withdraw his remark about the ignorance of maritime affairs.
Chris McDonald
I commend the hon. Gentleman for his service in the Royal Navy, and I am happy to withdraw that remark. Perhaps there was an oversight on his part in relation to that particular issue. I absolutely do withdraw that remark.
On the shadow Minister’s comment about the United Kingdom, the Isle of Man is a Crown dependency, as I am sure he knows, so it is not covered by the scheme. He mentioned the Isles of Scilly. The vessels to the Isles of Scilly are not covered by the scheme either, because they are below 5,000 gross tonnage.
The shadow Minister also mentioned the Isle of Wight, and I want to respond to the comments from the hon. Member for Isle of Wight East. I looked very carefully at the issues around the Isle of Wight before we tabled this statutory instrument, because those were a significant concern for me as well, and I am happy to offer some additional information now. I am grateful to my colleague my hon. Friend the Member for Isle of Wight West (Mr Quigley), who requested a meeting with me before this statutory instrument was laid. I was happy to have that conversation with him, and I offer that courtesy to the hon. Member for Isle of Wight East as well, if he would like to have such a meeting after this debate.
Perhaps I can in some way put the hon. Gentleman’s mind at rest. First, regarding the situation on the Isle of Wight versus the ferry operators in Scotland, one of the key considerations for us was that the population on the islands in Scotland is considerably lower than that of the Isle of Wight. There is also no competition generally between the ferry operators, but there are there are a number of routes operating to the Isle of Wight, as the hon. Gentleman will know very well. The scheme will affect only two vessels, from one operator, on the Isle of Wight: one is a diesel vessel and one is a hybrid vessel. Clearly, the impact of the scheme will be felt more on the diesel vessel than the hybrid vessel, and that is because of the 5,000 gross tonnage limit. I am sure that I am not telling the hon. Gentleman anything that he does not know, but I want to be clear that we have thought very carefully about this.
The hon. Gentleman and a number of Members mentioned the opportunity for decarbonisation. In my opening remarks, I mentioned a number of ways that that could be done, including more fuel-efficient operating practices and various other things. We have set aside £448 million of Government funding to support that, which was announced previously. If the hon. Gentleman would like to meet with me to go through more of that in detail and represent the views of his constituents, I would be happy to do that.
Joe Robertson
I welcome the offer to meet, and I wish to take the Minister up on it. As he will know, the hybrid vessel he refers to that travels across the Solent has electric capability, but it cannot be used because there is no grid capacity at Portsmouth. The Solent is one of the busiest shipping areas in Europe and the vast majority of pollution will be from large container ships going in and out of Southampton—and, of course, the Royal Navy operates out of Portsmouth. Putting any cost on a boat travelling to the Isle of Wight to allow to people to go to and from home fails to meet any sort of reasonableness test, but I thank the Minister for the offer of a meeting.
Chris McDonald
I appreciate the hon. Gentleman’s comments. Perhaps we can go through some of the assessments of the impact of cost inflation in more detail when we meet. Our modelling shows that that could largely be eaten up by normal inflation and normal operating practices, but there are decisions there for the operators to take into account. The hon. Gentleman made some pertinent points about the operators, and we can discuss those in more detail. He also mentioned international shipping through the Solent. Clearly, international shipping is not covered currently by this measure, but it is covered in the EU ETS.
Finally, I come to the points raised by the right hon. Member for East Antrim and the hon. and learned Member for North Antrim. The hon. and learned Member for North Antrim might be surprised to know that there are actually quite a number of things on which we agree, and one of them, for certain, is that the United Kingdom must be the United Kingdom of equals. I am quite clear about that.
I wanted to clear up a couple of points about the situation with Northern Ireland. The 50% reduction that applies to Northern Ireland is there to create parity between vessels that operate between Great Britain and Northern Ireland and those that operate between Great Britain and the Republic of Ireland. If we had not offered the 50% reduction, Northern Ireland would be disadvantaged in that way, and I want to be clear about why that is.
Jim Allister
The Minister is telling the Committee that parity with the Republic of Ireland is more important to him than parity with the rest of the United Kingdom. Really?
Chris McDonald
That is not what I am saying at all. I am saying that it was important to us that Northern Ireland was not in any way disadvantaged, which is why the 50% reduction was offered. The hon. and learned Member mentioned Rathlin island in his constituency; I remind him of the 5,000 gross tonnage limit and how that applies.
The hon. and learned Member, the right hon. Member for East Antrim and the shadow Minister all made a general point about the cost associated with the changes. There is a cost to not tackling climate change. If operators of vessels were spilling oil into the Solent or the Irish sea, then I am quite sure that the hon. and right hon. Members’ constituents would be clamouring for the Government to introduce regulations to do something about it. The fact that this pollution is not observable to the naked eye does not make it any less important to tackle it. These environmental regulations—and the Government’s policy on net zero—are about tackling that pollution and providing a stable and predictable regime so that industry can invest.
Sir Julian Smith (Skipton and Ripon) (Con)
Will the Minister clarify what the Northern Ireland Office’s submission in the write-round said about the impact of the measure on Northern Ireland, or give a sense of those discussions? Baroness Foster runs Intertrade UK, a committee that was designed during the Windsor framework negotiations to look at the very issue of trade. Has he had conversations with Baroness Foster? Having listened to Northern Ireland colleagues, will he look again at how this will impact the Union? On top of the Windsor framework—which I would argue was the best deal we could get—this measure is an additional burden.
Chris McDonald
I can tell the right hon. Gentleman that this measure will need the support of the Governments of all four parts of the United Kingdom.
Carla Lockhart (Upper Bann) (DUP)
Northern Ireland is and will be disadvantaged if we proceed down this track. What engagement has the Minister had with the individuals concerned, as the right hon. Member for Skipton and Ripon outlined? Will he extend the invitation he gave to the hon. Member for Isle of Wight East to the Members for Northern Ireland who feel very deeply about this and are very aggrieved, to discuss the real impact—not just the impact in his brief?
Chris McDonald
Yes, I am very happy to extend that invitation for a further meeting with any Members of the House who wish to discuss the matter. Of course, there has been extensive consultation on this statutory instrument.
Chris McDonald
I have given way multiple times, which I am sure the right hon. Gentleman will appreciate. I think it is time I brought the debate to a close.
These changes have the support of all four Governments of the United Kingdom, and consensus in advancing carbon pricing policy to include domestic maritime is key to delivering our decarbonisation goals and driving green investment across the United Kingdom. I commend the draft order to the Committee.
Question put.
Oral Answers to Questions
Chris McDonald Excerpts(2 months, 2 weeks ago)
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Nick Smith (Blaenau Gwent and Rhymney) (Lab)
The Parliamentary Under-Secretary of State for Business and Trade (Chris McDonald)
The Government recognise the challenge of high industrial energy costs. From April we will raise the discount on electricity network charges from 60% to 90% under the network charging compensation scheme, supporting around 550 electricity-intensive businesses. This year we also plan to review eligibility for the British industry supercharger and the energy-intensive industries compensation scheme. From 2027 the British industrial competitiveness scheme will cut electricity costs by around £35 to £40 per MWh for around 7,000 manufacturing businesses.
Nick Smith
Under the last Conservative Government we had soaring energy costs and the highest industrial energy bills in Europe. Now, under Labour, manufacturers, including those in Blaenau Gwent and Rhymney, have seen costly levies taken out. Will the Minister please outline what else the Government can do to bring energy bills down further for UK industry?
Chris McDonald
I thank my hon. Friend for championing the businesses in his constituency. One such business, GS Yuasa Battery Manufacturing in Gwent, is receiving support from the supercharger, exempting it from several renewables levies and electricity network usage costs. This is all part of the Government’s clean energy superpower mission, which will cut costs, boost energy security and accelerate grid connections.
Sir Alec Shelbrooke (Wetherby and Easingwold) (Con)
I have a fantastic Yorkshire brick company in my constituency. Unfortunately it had to go into administration, but it was rescued. As welcome as the supercharger scheme is, the problem was that the company did not qualify because it did not meet the business level test, so it did not get any Government support. Can the Government engage directly with ceramics manufacturers, which are huge users of electricity, gas and various other products, because if we export products to be made elsewhere, the carbon footprint is often much bigger than if we had made them locally?
Chris McDonald
The right hon. Gentleman knows that I share his concerns about the ceramics industry. He is quite right that many ceramics companies failed to qualify for the supercharger. There will be a review of the supercharger this year, and I have asked officials to look very carefully at the potential to include ceramics companies in it. I discussed that with the ceramics industry at an event in Parliament this week, which the right hon. Member attended—as, I think, did the Yorkshire brick company that he mentioned. I can also inform him that I and my hon. Friend the Minister for Trade will meet ceramics industries in the near future.
Mr Andrew Snowden (Fylde) (Con)
Lizzi Collinge (Morecambe and Lunesdale) (Lab)
The Parliamentary Under-Secretary of State for Business and Trade (Chris McDonald)
The Department is driving economic growth by delivering the long-term certainty that businesses need and by supporting the growth of businesses across the UK, including in Lancashire, where the Lancashire business growth hub is ensuring that businesses in Morecambe and Lunesdale have the advice to grow, to scale up and to succeed.
Lizzi Collinge
In my constituency of Morecambe and Lunesdale, we have the Electech innovation cluster, which is a growing group of small and medium-sized firms, many of which supply specialist components into the clean energy sector, particularly nuclear, and into the vital defence sector. The Minister would be welcome to visit them. How is the Department supporting SMEs, such as those in the Electech innovation cluster, and how will they benefit from the Government’s investment in industry?
Chris McDonald
I thank my hon. Friend for her work in championing small businesses in her constituency, particularly the Electech cluster, where businesses such as Teleplan Forsberg, Like Technologies and Mazuma are working in the clean energy sector. Our clean energy industry sector plan focuses on capitalising on the strengths of these businesses and doubling investment levels across our frontier industries to more than £30 billion a year by 2035. That will directly support businesses in that cluster. I would of course be delighted to come and visit.
Peter Swallow (Bracknell) (Lab)
Emma Foody (Cramlington and Killingworth) (Lab/Co-op)
The Parliamentary Under-Secretary of State for Business and Trade (Chris McDonald)
I thank my hon. Friend for the work she is doing to highlight the north-east’s role as a key part of our life sciences and pharmaceutical industries. She mentions Organon in her constituency. Its Cramlington site was singled out by the leadership of that business at the J. P. Morgan healthcare conference in San Francisco recently. In two weeks’ time, I will be opening Fujifilm’s biotechnology factory in Billingham in my own constituency—a £400 million investment in north-east biosciences. Our life sciences sector plan is backing the pharmaceutical manufacturing industry with £2 billion of investment and our UK-US deal is delivering zero-tariff access for UK pharmaceutical exports.
Shockat Adam (Leicester South) (Ind)
When will the Government announce the results of their British industrial competitiveness scheme consultation, and provide the fabulous manufacturing industry in my constituency with some much-needed help towards its energy costs?
Chris McDonald
The hon. Gentleman is right to point out that the British industrial competitiveness scheme will provide a significant discount to up to 7,000 manufacturing businesses of up to 25% of their energy costs. It will certainly help manufacturing businesses in his constituency and across the whole UK. I encourage businesses in the hon. Gentleman’s constituency to contribute to the consultation, the results of which we will announce in due course.
Catherine Fookes (Monmouthshire) (Lab)
Recently I met with employees and union reps from SYNLAB, a thriving pathology laboratory in Abergavenny. It has been taken over, and now more than 30 jobs are at risk, meaning that these highly skilled opportunities in science, technology, engineering and maths could move out of my constituency. I thank the Under-Secretary of State for Business and Trade, my hon. Friend the Member for Halifax (Kate Dearden), for meeting me earlier this week, but would she meet with colleagues in the Welsh Government and myself to discuss how we ensure that we keep these kinds of high-tech jobs in Wales, as it should not just be big cities that benefit from these STEM opportunities?
Dave Robertson (Lichfield) (Lab)
I thank the Minister for Industry for his engagement with Ceramics UK this week, meeting the organisation and ceramics companies from across Staffordshire, Stoke-on-Trent, the west midlands and further afield. He will have heard from them about the importance of getting ceramics firms into the super- charger scheme. I was pleased to hear what he said about trying to extend eligibility, so could he give us an idea of when we might hear some positive news on that front?
Chris McDonald
I am grateful to my hon. Friend for so clearly representing the importance of the ceramics firms in his constituency. I heard the message loud and clear from the ceramics industry this week about the impact of energy costs and, as I mentioned earlier, in the review of the supercharger scheme, I have asked my officials to look carefully at the opportunities for including the ceramics sector.
Ben Obese-Jecty (Huntingdon) (Con)
The Ajax armoured vehicle programme is currently under threat, but work is due to be completed at the Merthyr Tydfil factory next summer. Could the Minister confirm whether there are any conversations through the UK Defence and Security Exports office around securing an export package for the Ajax vehicle and guaranteeing work at the factory going forwards?
Martin Vickers (Brigg and Immingham) (Con)
I return again to the steel industry, and thank the steel Minister for the meeting we held a few weeks ago. I was contacted by a couple of employers in Scunthorpe last week who expressed concern about recent reports of publicly funded contracts using foreign-produced steel. Could the Minister give an assurance that British-produced steel will take priority in such cases?
Chris McDonald
I thank the hon. Gentleman for his positive and constructive engagement on this issue. I do understand the concerns of the steelworkers in Scunthorpe. I know precisely the projects he is referring to; they were not procured under public procurement rules, and the developers and tier 1 contractors involved have followed their own rules and commitments. However, it is the case that this Government want to see more British steel used in both public and other projects around the country, which is a matter both for developing steel capability and, potentially, for reviewing our procurement rules.
Madam Deputy Speaker (Ms Nusrat Ghani)
For the final question, I call David Mundell.
Draft Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2026
Chris McDonald Excerpts(2 months, 2 weeks ago)
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The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Chris McDonald)
I beg to move,
That the Committee has considered the draft Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2026.
I am grateful to you, Sir Desmond, and to the Committee for their consideration. The draft order was laid before the House on 16 December 2025.
The UK emissions trading scheme, the UK ETS, was established under the Climate Change Act 2008 by the Greenhouse Gas Emissions Trading Scheme Order 2020 as a UK-wide greenhouse gas emissions trading scheme contributing to the UK’s emissions reduction targets and net zero goal. The scheme is run by the UK ETS authority, a joint body comprising the UK Government and the devolved Governments. Our aim is to be predictable and responsible guardians of the scheme and its markets.
Under the UK ETS, operators are required to monitor, report on and surrender allowances in respect of their greenhouse gas emissions. While most allowances are purchased at regularly held auctions, operators in certain sectors at risk of carbon leakage are given a number of allowances for free, referred to as free allocations. Free allocations reduce exposure to the carbon price for those sectors at risk of carbon leakage and reduce the risk that decarbonisation efforts could be undermined by production, and the associated emissions, moving to other countries.
Under the UK ETS, an operator is the person or company that has control over an installation. Installations are stationary units at which regulated activities take place. Sub-installations represent operations carried out at an installation in respect of which operators that receive free allocations are required to report activity levels for the purposes of the UK ETS.
We have brought forward this draft statutory instrument to enable important changes and improvements to the scheme. The first change that the instrument makes is to enable operators of installations to be able to notify their regulator that they wish to have their activity data for the 2020 scheme year, or 2020 and 2021 scheme years, excluded from the calculation of their historical activity level for the 2027-to-2030 free allocation period. That is in recognition of the fact that production levels may have been impacted during the covid-19 pandemic. Such operators will be able to notify their regulator during the second stage of the 2027-to-2030 free allocation application, which runs from 1 April 2026 to 30 June 2026, that they wish to have their activity data for 2020, or 2020 and 2021, excluded.
Legal change is needed to the free allocation regulation, because existing legislation would require regulators to calculate historical activity levels using activity data from all five years of the baseline period, or 2019 to 2023. If amendments are not made, there will be no legal basis for regulators to exclude 2020, or 2020 and 2021, data from the historical activity level calculation for any applicant. Using activity data for those years could result in historical activity levels that do not reflect normal activity, meaning that operators would receive fewer free allocations than they would otherwise be entitled to receive.
The second change that the draft instrument makes is gradually to phase out free allocation for sectors covered by the UK carbon border adjustment mechanism, or UK CBAM, starting over the 2027-to-2030 allocation period. That phase-out will be implemented through applying a UK CBAM reduction factor to the calculation of free allocation and will apply at sub-installation level. To do that, operators will be required to report which of their sub-installations serve the production of goods within the UK CBAM, which will enable regulators to apply the UK CBAM reduction factor to the relevant sub-installations. Legal change is needed as operators only classify their sub-installations by a specific benchmark and the corresponding carbon leakage status of that sub-installation. The instrument also requires operators to classify each sub-installation as relevant or not to UK CBAM.
Benchmarks are the efficiency standards used to calculate each installation’s free allocation entitlement. Installations closer to their benchmark have a higher proportion of emissions covered by free allocation, rewarding more efficient installations and incentivising decarbonisation. The third change that the instrument makes is to use current benchmarks for the purpose of calculating free allocation for stationary installations for the 2027 scheme year. The instrument also provides for the ability to update the benchmark values used to calculate free allocation for the years 2028, 2029 and 2030 of the 2027-to-2030 allocation period. Maintaining current benchmarks for the 2027 year will allow time for industrial participants to adjust to the changes.
Legal change is needed to the free allocation regulation because, under existing legislation, there is no provision to update benchmarks during an allocation period. The in-principle intent is to use the updated EU ETS phase 4 benchmarks in the 2028, 2029 and 2030 scheme years. That will be decided once the EU benchmark values are available, and subject to assessment of the impact.
Installations that permanently cease to operate are required to report on their activity in the final year of operation so that free allocation can be recalculated to reflect the cessation of activity. The amendment clarifies that operators are required to report on the activity levels of a sub-installation, whether that is due to permanent cessation, as is currently provided for, or the surrender or revocation of the operator’s permit.
The intended changes follow comprehensive engagement and consultation with stakeholders. The UK and devolved Governments carried out consultations that covered the provisions included in the statutory instrument. The free allocation review consultation ran from 18 December 2023 to 11 March 2024, seeking views on proposals to alter the free allocation methodology for the UK ETS stationary sectors to better target those most at risk of carbon leakage and ensure that free allocations are fairly distributed.
The free allocation review carbon leakage consultation ran between 16 December 2024 and 10 March 2025. It sought views on a draft UK-focused carbon leakage list, compiled by applying UK data to the existing carbon leakage list, as well as the trajectory for phasing out free allocations for sectors that will be covered by the UK carbon border adjustment mechanism. The relevant responses to those consultations were summarised in the authority’s response.
The changes in the draft order will deliver on commitments made by the UK ETS authority, improve the fairness of the scheme and increase certainty for both regulators and operators. They will ensure that free allocation continues to provide meaningful support to UK industry while maintaining the incentive to decarbonise and rewarding efficient installations. The amendments to the UK ETS will support its role as a key pillar of the UK’s climate policy. They demonstrate that we will take action to improve the scheme where necessary. I commend the draft order to the Committee.
Chris McDonald
I thank everyone for their contributions to the debate, which was considerably more fulsome and energised than is usual for a 4.30 pm Committee. I am incredibly grateful, because Members in all parts of the Committee made a number of points, giving me the opportunity to clarify some details of the workings of the scheme.
The shadow Secretary of State, the right hon. Member for East Surrey, said that it was a very dense report with a lot of governmentitis. I know that she understands the details of this subject well, because she is the former Secretary of State, but I appreciate that it is technical, and it behoves all of us to try to explain as clearly as possible what the draft order means.
I will start by addressing some of the specific points in the draft order and then talk a bit more generally about some of the points that Members have raised. I appreciate the concerns on both sides of the House about the impact on industry and the risk, when we are decarbonising industry, of deindustrialisation. I know that this concern is sincerely felt by everybody in this room, even if we might differ at times on what we think the best approach is. That is why we have been so careful to consult industry on these measures, as I outlined in the long catalogue of dates in my opening speech. We have consulted carefully with industry and made sure we have listened to what they have said.
Some of the issues here run quite broadly around industrial competitiveness. Possibly one of the main points to recognise is that it is important through the whole decarbonisation process that industry manages to maintain access to its key markets, and clearly one of the key markets is the EU. That is where we come to the discussion about linking the EU ETS and the UK carbon border adjustment mechanism with the EU to enable our UK industries to continue to trade there. Negotiations with the EU started in November, but I want to be clear that they will only conclude in this way if it is in the UK interest to do that. We will continue to consult with UK industry on that matter too.
In relation to points made by my hon. Friend the Member for Stoke-on-Trent Central, the ceramics industry made three specific requests during the consultation. We managed to adopt requests to include ceramics on the carbon leakage list, no tiering of free allocations, and greater engagement with the ceramics sector, which is why we set up the UK ETS working group. My hon. Friend asked me specifically if we could reallocate free allocations from other sectors to ceramics. That is not possible within the current rules, but that does not mean that I am not aware of the issues surrounding the ceramics sector. We can use the UK ETS group to look at ETS issues, but we should also look more broadly at the concerns of the ceramics sector. I look forward to starting that conversation over dinner with my hon. Friend and the ceramics industry later this evening.
On the question of power and the impact of the instrument on energy bills, the important point is that the ETS applies to power that is produced from fossil fuels, not renewable energy. This Government’s policy is to pursue our clean power mission by 2030, which involves investing in the cheapest forms of power available, in onshore and offshore wind, solar power and nuclear energy. The purpose of the ETS is to incentivise that. The carbon price incentivises investment; it provides the incentive in power and in industry to invest in new green technologies.
Claire Coutinho
Originally, the choice was between coal and gas, but there is no coal in the system anymore; there is only gas. Even in the Minister’s clean power plans, gas is the dispatchable power in the system—there is no other choice; nothing else will keep the lights on when the wind does not blow and the sun does not shine. Even in his plans, gas will set the price 50% of the time. He is needlessly imposing a tax that inflates that price of gas to the consumer when there is no other choice available. Will he at least come up with a forecast for what this will mean for energy bills and consumers in this country, considering that they do not have another choice, even in the Minister’s plans, apart from using gas power?
Chris McDonald
I think what the shadow Secretary of State has outlined is exactly the success of this policy—it has driven coal out of the system in favour of cheaper power. That is exactly the point of the ETS and the industrial investment. Of course, as we said, we are pursuing our clean power mission for energy security and to lower energy bills, as well as to ensure that we also have green energy.
Steve Barclay (North East Cambridgeshire) (Con)
Can the Minister explain why his impact assessment says opposite things on the same page? In respect of the £92 million direct net cost to business, on the one hand, it says:
“our working assumption is that all costs are incurred to business, with no indirect impacts to households.”
In the very next paragraph, it says:
“we estimate that cost-pass through for most sectors could feasibly be at 80-90%”.
Both those things cannot be true, can they?
Chris McDonald
What can be true is that there are both costs and savings for industry, particularly the savings for industry associated with being a member of the UK carbon border adjustment mechanism, which will come into force in 12 months. If we link the UK and the EU ETS, that will enable UK industry to trade freely within the EU, as it has done in the past.
Chris McDonald
No, no—I have dealt with that.
The hon. and learned Member for North Antrim asked me about the issue in Northern Ireland, which is a separate electricity zone. Electricity generators in Northern Ireland have not historically received a free allocation, and in future, the free allocation rules on electricity generation will apply in the same way for the UK and EU operators, assuming that there is linkage.
I will return to the point about industry that was made by the shadow Secretary of State, among others. Clearly, the drive is to incentivise investment in industry, and that is precisely what the policy does; that is precisely the mechanism of the carbon price. It is a fallacy to assume that the investment in industry will result in less efficient or more expensive industrial products. That is certainly not the case for the steel industry, where investing in green technology results in lower production costs. The Government’s policy framework gives industrial companies a clear investment framework.
Claire Coutinho
I appreciate the Minister’s graciousness in understanding our concern for industry. His priority is decarbonisation, but I am sure he will understand the very real risk that it is not the case that the UK is decarbonising, because those industries are not remaining in the UK and cutting their emissions; instead, UK businesses in those industries are going abroad, often to countries that have more polluting regimes than the UK—which has some of the cleanest electricity of anywhere in the world—including places that are still powered by coal. Rather than reducing global carbon emissions, we will actually increase emissions by moving our businesses from the UK to countries that have more polluting regimes. That will mean fewer jobs in Britain for more carbon in the atmosphere. Do the Government plan to monitor whether that is happening, and if it is, will the Minister change course? Surely he would agree that such a scenario would not count as decarbonising well; in fact, it would not be decarbonising the planet at all.
Chris McDonald
The shadow Secretary of State and I are clearly both concerned about the same thing. I know that that concern is shared across the House, but deindustrialisation and decarbonisation need not be in competition. Sadly, under the previous Government, there was a 30% reduction in UK cement production, a nearly 50% reduction in automotive production and a 30% reduction in chemicals production. That is why, alongside the ETS policy, we published our industrial strategy; it is why I introduced the British industrial competitiveness scheme to reduce energy costs for 7,000 manufacturing businesses; and it is why we increased the supercharger to 90% for energy intensive industries.
Clearly, we recognise that energy costs have been too high in the UK for industrial businesses as well as consumers. That is primarily a result of the policy of the previous Government to leave us at the mercy of petrostates and fossil fuel dictators, on the rollercoaster of fossil fuel prices. The shadow Secretary of State said that my priority is decarbonisation. I happen to be in a place where there is a happy coincidence between energy security, decarbonisation and the lowest cost of energy. That is recognised by industry, and that is why it is Government policy.
Chris McDonald
I feel I have detained the Committee for too long, so if the right hon. Member will excuse me, it would be a good idea to draw the debate—and we have had a good debate—to a close.
The statutory instrument will give certainty to the industry around benchmarks and free allocations. The free allocations reduction is specifically for those sectors that are part of the carbon border adjustment mechanism, so some other sectors will not be affected. The legislation needs to be in place for applicants to apply for their free allocations for the period to April 2026. The statutory instrument will implement the proposed improvements to the scheme.
Chris McDonald
These changes have the support of the four Governments of the UK. That consensus on advancing carbon pricing policy adds to the strength of the UK ETS. I therefore commend the draft order to the Committee.
Question put.
Ineos Chemicals: Grangemouth
Chris McDonald Excerpts(3 months, 4 weeks ago)
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The Parliamentary Under-Secretary of State for Business and Trade (Chris McDonald)
The Government have agreed a landmark partnership with Ineos to secure the strategically important ethylene cracker in Grangemouth, Scotland. This agreement ensures that the future of this vital site is protected and demonstrates the Government’s commitment to support workers and their communities in Scotland and across the rest of the UK.
The plant, like many across Europe, has faced challenging market conditions. Three quarters of the plant’s output is used domestically by our downstream manufacturing sectors. This includes supporting our industrial strategy growth sectors who depend on ethylene supply, and downstream uses ranging from advanced polymers for defence and medical grade plastics in our life science sectors, to advanced manufacturing sectors such as automotive. The Grangemouth plant is crucially important to our critical national infrastructure given the interconnected assets operated by Ineos—the ethylene pipeline system and the Forties pipeline system. This is why we have acted decisively and stepped in to ensure that it is secured.
The agreement consists of more than £120 million in UK Government support and at least £30 million of investment from Ineos. This package will save jobs, reduce emissions and increase productivity, helping to secure the site’s continued operations and long-term competitiveness. It will reinforce the hundreds of millions of pounds of investment that Ineos has already made over the last few years in maintaining operations at the site. We are also creating the conditions for Grangemouth’s long-term future. Through Project Willow, up to £200 million from the National Wealth Fund will support new jobs and projects subject to meeting usual assessment criteria.
This agreement strengthens the resilience of our foundational sectors and their supply chains within the UK, which underpins our industrial strategy. It will ensure that the site remains operational for the foreseeable future and continues to support the commercial strength of the Grangemouth cluster.
Funding for this intervention will be covered by existing budgets that have been agreed as a part of the departmental spending review settlements. The Government set a very high bar for interventions of this kind. This includes assessing the viability of the business, the economic and social impacts of potential public support, and the contributions of the private sector—including shareholders. Where the Government do intervene, they sets clear, strict conditions on how the money is used. We are taking bold action today to support this site, recognising its strategic importance.
We are also backing the wider chemicals sector through the industrial strategy with targeted support to bring down energy costs, including through the British industrial competitiveness scheme—which will slash costs for businesses in sectors including chemicals by up to 25%—and the British industrial supercharger, which will save Britain’s most energy-intensive firms money on their electricity costs.
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