The government has announced an amendment to CfD exemptions for energy intensive users in the UK.
The UK government has implemented a number of schemes to encourage businesses to reduce carbon emissions as part of the nation's climate change commitment. These schemes would see additional costs added to a company's energy bill unless action is taken to reduce its carbon footprint.
These additional costs could have a significant impact on industries which use a high amount of electricity; such as aluminium, cement, ceramic, chemical, glass, paper, steel and industrial gas producers. Unless these industries take measures to reduce carbon emissions the additional costs could make their business model completely unviable in the UK.
However, the closure of a major steel plant in Redcar has resulted in a revision of the current exemptions. The government are now attempting to strike a balance between its decarbonisation and industrial commitments to avoid losing large energy consumers.
Additional exemptions have been announced by the Prime Minister, specifically in regards to the Renewables Obligation (RO) Charge and small-scale Feed-In Tariffs (FiT); these proposals are now awaiting approval from the European Union.
Climate Change Levy (CCL)
- Industries which are classed as energy intensive which sign up to the Climate Change Agreement will be eligible for up to 90% relief from CCL charges.
- Mineralogical and metallurgical processes are 100% exempt from CCL charges from April 2014 to ensure UK tax treatments are in line with those elsewhere in the EU.
European Union Emissions Trading System (EU ETS)
- The government offers compensation to energy intensive industries for indirect costs from the EU ETS.
Carbon Price Floor (CPF)
- Compensation was offered for the CPF in summer 2014.
- Fuels used to produce low-carbon electricity in a CHP plant are exempt to the CPF from 2015/16; reducing the impact of carbon pricing by around 80%.
New Exemptions to be implemented
Renewables Obligation (RO)
- Compensation of up to 85% will be offered for RO costs and small-scale FiTs from 2016/17 to 2019/20.
Contracts for Difference (CfD)
- Aims to exempt high energy industries from future low-carbon electricity subsidy costs under CfDs, up to 85%. It is hoped this will be implemented before the end of 2016.
Carbon Price Support
- A cap will be placed on the CPS rate at £18 a tonne of CO2 from 2016/17 till 2020.