Here are the climate-related sections of speeches by MPs during the Commons debate Financial Assistance to Industry.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Amanda Solloway)
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.
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.
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Amanda Solloway
As set out in our 10-point plan for a green industrial revolution, our aim is for the UK to develop 5 GW of low-carbon hydrogen production capacity by 2030; that could see the UK benefit from about 8,000 jobs across our industrial heartlands and beyond. It will be supported by a range of measures, including a £240 million net zero hydrogen fund. The financial system outlined in the motion will be of huge benefit to the UK energy-intensive industries most at risk of carbon leakage. It is imperative that we continue to support those industries, which are so vital to the UK economy. I am assured that section 8 of the Industrial Development Act 1982 is the appropriate means by which to make such payments, and I commend the motion to the Committee.
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16:40 Matthew Pennycook (Labour)
As I have said to the Minister on previous occasions, we cannot run the risk of a dysfunctional carbon pricing system in the year we host the critical COP26 UN climate summit. As the Committee will know, only 24 days—eight sitting days—of this parliamentary term now remain until the transition period ends, and with it the UK’s participation in the EU ETS. Yet the Government have still not announced whether a stand-alone UK ETS or a carbon emissions tax will operate from 1 January should a linking agreement with the EU ETS not be negotiated and put in place by that date. Surely, the Minister cannot believe it is fair that the emitters in question still have no idea what arrangements they will be operating under in just three and a half weeks’ time. My understanding is that a decision has been on the Prime Minister’s desk since late last month. If that is the case, what on earth is stopping the Government making clear to those affected what fall-back carbon pricing arrangement will operate in the UK from 1 January should the linked UK-EU scheme not materialise from the negotiations in the coming days and weeks?
The second issue I want to raise concerns the long- term arrangements for addressing carbon leakage and ensuring that our energy-intensive industries remain competitive as we accelerate the pace of emissions reduction. We accept that compensation of the kind we are authorising today is necessary, but to avoid the cost of such compensation spiralling over the long term, as the price of carbon is increased, there must be sufficient long-term support to green the industries in question. After all, as the Minister will know, many if not all of the energy-intensive industries covered by the motion will not only benefit from compensation for the indirect emissions cost of carbon pricing, but will continue to benefit from reduced costs in respect of climate levies. They are, in short, in a relatively privileged position relative to other less energy-intensive industries. Therefore, as we accelerate efforts to achieve net zero, there will have to be greater use of conditionality to ensure that the financial support provided to compensate these industries is balanced by measures to ensure that their carbon intensity is steadily reduced.
I note that a review and a consultation in early 2021 in relation to the compensation scheme have been mentioned, and the Minister touched on that in her remarks, but I would be grateful if she could reassure the Committee that the Government recognise the limits of the compensation mechanism in question over the long term as the price of carbon rises, and that they accept that more will need to be done beyond the schemes she touched on to accelerate the pace of decarbonisation in these industries, not least to manage the costs of the current scheme going forward.
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16:45 Amanda Solloway
In response to the hon. Member for Greenwich and Woolwich, the operations are under negotiation. Of course we have a long-term commitment to climate change, as indicated in our 10-point plan. The Government are determined to continue to minimise the risk of carbon leakage to help businesses improve their productivity and competitiveness as part of our industrial strategy. Furthermore, we will work with our partners in industry to start deploying hydrogen and carbon capture usage and storage technologies.
At the same time, it is important that we continue to mitigate the cumulative impact of energy and climate change policy costs on energy prices for energy-intensive industries as we make the transition to the low-carbon economy. The Government have taken steps to reduce the impact of energy and climate change policies on industrial electricity prices for key energy-intensive industries in sectors such as steel, chemicals, cement, paper and glass. Between 2013 and 2019, total relief to energy-intensive industries for electrical policy costs was around £1.5 billion to over 220 businesses across the UK. We therefore seek approval to pay 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 13 companies. I commend the motion to the Committee.
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