Financial Assistance to Industry

Kevin Hollinrake Excerpts

Monday 7th December 2020 General Committees

[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?