Businesses that use high levels of electricity could be compensated for up to 85% of the costs of carbon reduction policies from 2013, under government proposals to prevent firms moving their operations elsewhere
Following the chancellor’s pledge in his 2011 Autumn Statement to help energy-intensive sectors cope with the increasing costs of energy and carbon, the business department (BIS) and DECC have outlined how the government aims to provide compensation to firms.
Under the proposals, companies from sectors, including metal, paper and plastics manufacturing, will be able to claim compensation for the “indirect costs” of the carbon price floor and the EU emissions trading scheme (ETS), if they can demonstrate that the costs of carbon will equate to 5% or more of their GVA (gross value added) by 2020.
“It is important we ensure that as we move to a low-carbon economy, those industries that are more energy-intensive are not ‘forced’ to relocate to other countries,” said energy secretary Edward Davey.
“This would not only have a negative impact on our economy, but could also result in us exporting emissions to countries that are not as strongly committed to cutting carbon emissions.”
According to DECC, energy and climate change policies could increase electricity prices for large energy-intensive organisations by up to 28% by 2020.
In line with European Commission guidelines on support for companies subject to the ETS, the government is proposing to provide £110 million of aid, compensating firms for 85% of cost increases during 2013–2015, 80% in 2016–2018 and 75% in 2019–2020.
A separate £100 million support plan for those impacted by the carbon price floor, follows the EU ETS compensation mechanism closely, with aid levels outlined at 85% of cost increases over 2013–2015.
The proposals, which are subject to EU state aid rules, are outlined in a consultation which runs until 21 December and includes detailed explanations of eligibility criteria and compensation calculations. BIS is also hosting a stakeholder event on 23 October 2012, to discuss the proposals.
The two compensation schemes will run alongside an increase in relief from the climate change levy for climate change agreement participants, from 65% to 90%. In total the government is to spend £250 million over the spending review period to support energy-intensive users.
