Electricity Supplier Obligations (Excluded Electricity) (Amendment) Regulations 2019

Lord Teverson Excerpts

Wednesday 23rd October 2019 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy and Northern Ireland Office (Lord Duncan of Springbank) (Con)]

My Lords, it is like I have never been away. This statutory instrument amends the Electricity Supplier Obligations (Amendment & Excluded Electricity) Regulations 2015. The existing legislation supports the competitiveness of energy-intensive industries by exempting eligible businesses from a proportion of the costs of funding renewable electricity. This instrument amends the existing legislation to: include the manufacture of grain mill products; clarify the application of state aid requirements which exclude firms in difficulty from the scheme; and improve the scheme’s overall operation.

The sectors eligible for the existing exemption scheme employ over 300,000 workers and account for more than a quarter of total UK exports. Many are located in areas of economic disadvantage and provide good, well-paid jobs. While our industrial gas price is internationally competitive, our electricity prices for medium and large industrial users are the highest in western Europe and have been for some time. Clearly, electricity costs have a significant impact on the competitiveness of such enterprises. The industries affected operate in international markets, so higher electricity costs place them at a competitive disadvantage, resulting in the risk of carbon leakage, which is when companies choose to move their production to countries with less ambitious climate policies.

Existing legislation covering energy-intensive industries allows eligible businesses to receive an indirect exemption of up to 85% of the costs of funding renewable electricity schemes. When an eligible business applies successfully for the exemption, its electricity supplier receives a reduction in the costs which it passes on to the eligible business. This approach mitigates the cost of the renewable electricity schemes, supports industrial competitiveness and provides certainty for businesses. The costs of the exemption are distributed to other electricity users.

As I said, the regulations add the grain mill products sector, as it now meets the criteria for inclusion in the scheme. The regulations clarify the information that applicants must give to enable the department to assess their eligibility. They also improve the scheme by ensuring that a business that uses a new meter will have to accrue only three months of data before applying; and that, when electricity meters are shared by more than one business, the proportion of electricity which is exempted will be updated more rapidly. Certificates will now expire at the end of June rather than March, thereby reducing the risk of businesses facing a gap in receiving the exemption. Businesses are also now able to submit their quarterly reports on any day of the quarter, resulting in increased flexibility for them.

In conclusion, these regulations will extend and improve the existing legislation and support the competitiveness of energy-intensive manufacturing industries in the UK. I beg to move.

[Lord Teverson (LD)]

My Lords, I am interested that the Minister did not mention carbon leakage, because that is absolutely the core of what this is about. It is about reducing our own carbon footprint. If industry migrates to China or to south-east Asia, that has no effect in any way on global emissions even though it reduces our carbon footprint. At that point we lose employment and all the advantages of business that he outlined.

There is a completely different and topical approach to this issue. Professor Dieter Helm, in his report earlier this year or at the end of last year to the department, said that one of the things that needs to happen if we are serious about electricity prices, energy prices and a carbon-neutral economy is that we should have external carbon tariffs. On our European position, whether we are inside or outside, it is interesting that the President-elect of the Commission, Ursula von der Leyen, said that external carbon tariffs were a way forward as a core part of her Green Deal package for Europe. Whether we have equivalence when we are outside is another question.

Has the Minister’s department looked at all strategically at this question, rather than fiddling around with which industry, sector, business, conglomerate or corporate should be in this definition? I have no idea why flour milling should be, but it is great that it needs to be. I have no argument with that. I have not come across that industry in this context before. Would moving forward in this external way not solve all these problems at a stroke? I suspect that a lot more might be produced internationally, but it seems the direction of travel.

I am not sure that the Minister mentioned businesses in distress, which are now excluded from this for state aid reasons. I do not necessarily disagree with it, but I want to understand it more. Has that exemption been used in the past? Perhaps we can understand some examples and what effect it had.

[Lord Lennie (Lab)]

The contracts for difference scheme demands that certain high-energy industries pay what is in effect a tax to fund a levy to help subsidise and encourage the generation and production of renewable electricity. Within the scheme, energy-intensive industries, or EIIs, can apply for an exemption from having to pay. This SI adds flour milling to the list of those industries eligible to apply for an exemption, to help the milling industry remain internationally competitive—what you might call flour power.

The SI also seeks to hasten the responsiveness to applicants seeking such exemptions. Where a meter is used for shared purposes either within or between companies, it allows speedier and more accurate removal from the scheme of those activities which do not qualify for such a reduction. It extends EII certificates from the end of March to the end of June each year, giving business more time to report and lessening the chance of a gap between reporting and granting of exemptions

I have some questions. Does the scheme apply to all flour millers and all flour milled, or is it restricted to flour milled for the human food chain only? Graded grains make finer flour, as the phrase goes. Is the scheme just for human-chain flour, or is it for other flour used for animal feed purposes? Is the Minister satisfied that the changes proposed in the scheme will ensure the long-term future of the flour milling industry internationally as well as helping to stabilise food security post Brexit?

The next review of the EII scheme is not due until 2023. Given the Government’s welcome shortening of their climate change targets, should not this review also be brought forward to determine any revisions that may be necessary to the scheme to help meet these obligations?

I understand that the feed-in tariffs scheme closed in April 2018, so why does paragraph 2.3 of the Explanatory Memorandum state that eligible EIIs,

“are also eligible for reductions in the costs of funding two other policies that support renewable electricity generation, namely the Renewables Obligation (RO) (in England and Wales and in Scotland) and the small-scale Feed-In Tariff (FIT) schemes”?

If that scheme has closed, why does the Explanatory Memorandum use an active word, or has the scheme been replaced and renewed in ways that we have not yet heard?

The Government announced a control mechanism for low carbon levies in 2017: in effect, that they would have to prove that they were value for money. Can the Minister provide any up-to-date assessment of that decision?

[Lord Duncan of Springbank]

It has been a remarkably short and sweet debate. Long may such debates continue. I say to the noble Lord, Lord Teverson, that I did mention carbon leakage, as it happens.

[Lord Teverson]

I apologise.

[Lord Duncan of Springbank]

Not at all. The noble Lord is quite right in one respect: the notion of carbon leakage is potentially worse for global emissions, because moving from an area where there are high standards to one where they are lower runs the risk of one’s emissions being increased.

The issue of carbon border tariffs is fascinating. I spent a great deal of time as a Member of the European Parliament and a rapporteur looking at carbon border tariffs around the emissions trading scheme. The challenge with that was that, even at an EU level, it was hard to get a consensus to support it. I do not want to set any hares running, but I want to consider it carefully because we cannot rule anything out in the future.

However, the present scheme is designed as best we can to ensure a level of competitiveness, which I think we can appreciate. We need to recognise where the energy-intensive industries can become more efficient and thereby reduce their emissions, and where there are certain process emissions which are simply the output of an equation in chemistry and will always produce a certain number of carbon dioxide molecules. There are important things that we need to explore.

On businesses in distress, an example that might fit here is the steel industry but, in truth, it would have qualified even had it not been in distress, because it was already within the carbon intensives. We are looking at the supply chain, as we drop down from the larger sector to the smaller parts of the supply chain which may be in distress as a consequence of a bigger impact somewhere higher up. Rather than me simply saying this, I will write to the noble Lord to set this out in some detail and I will happily place a copy of that in the Library so that he can see exactly where that rests.

The question raised by the noble Lord, Lord Lennie, relating to the flour mills themselves is an interesting one, because it is a question that I also asked myself. Do all flour mills automatically qualify? The answer is, no, they do not; they still have to meet the obligations set inside. A flour mill would be eligible to take part because it is now within an industry that is recognised as qualifying, but the individual mill itself would still have to meet the criteria to qualify for inclusion in order to secure the benefits. That would apply to all sectors, so it is not an automatic inclusion, although some industries or sectors are pretty much in their entirety all within that.

As to the longer-term question, I would hope that this will help flour milling to be competitive at the European and global levels. Food security remains one of the prime considerations across the EU and here at home. On the issue of whether we will review this, I think we should in fact be constantly reviewing these issues. I appreciate that my making that statement and a review actually occurring might not be hand in glove, but I recognise that, on the glide path to COP 26 next year in Glasgow, we should look at all our obligations in this regard to make sure that they are all being delivered as expected. If we are not careful, we could become complacent and simply rely upon that which worked in the past. We want to make sure that it works going forward.

When the noble Lord raised the question of feed-in tariffs, I also had a little twinkle in the back of my mind that they were closed. They are in fact closed to new entrants but there are existing recipients who benefit from the payments, and that is why they are cited in the body of the Explanatory Memorandum. They are few in number and, if the noble Lord would like, I will happily set out how many still qualify under the feed-in tariff scheme within this wider obligation.

On that basis, I think I am content to move these regulations forward.