UK industry groups flag government policy risk

Industry association UK Steel has joined other energy-intensive industry trade associations in signing an open letter to the government detailing the risks of certain policy impacts on their respective sectors, Kallanish learns.

The letter to Sarah Jones, Minister of State for the Department for Business and Trade, was spearheaded by Arjan Geveke, director of the Energy Intensive Users Group (EIUG). As well as UK Steel, other signatories includes those from the glass and ceramics sectors, chemicals and refineries, paper and mineral sectors, as well as the GMB Union.

It says while they support the government’s ambitions to boost economic growth and meet the Net Zero target, their ability to invest in decarbonisation technologies is held back by relatively high electricity costs, policy uncertainty and risk of carbon leakage. This has often made investment in the UK uncompetitive.

It notes the UK currently has higher industrial energy costs than in Europe, the US and Asia. This is something UK Steel has flagged repeatedly, calling on the government to increase the rate of compensation for network charges from 60% to 90% to bring UK network charges closer to those in key European countries.

The letter also notes that security of energy supply is critical but the rise of “intermittent technologies”, such as renewables, generating electricity and changes in geo-political circumstances, has increased risk.

Meanwhile, it also says the UK’s Carbon Border Adjustment Mechanism (CBAM) needs significant improvement to make it effective and without loopholes. Its 2027 implementation risks trade barriers and trade diversion with the EU when the bloc’s CBAM starts in 2026.

“The 12-month gap could see detrimental impacts, as higher-carbon products that would have been imported to the EU risk being diverted to the UK instead,” it says.

If the government will not bring CBAM forward to 2026, it asks it to prepare mitigation measures, particularly around trade remedies. It also wants to ensure carbon leakage policy addresses both import and export risks.

The NESO Clean Power 2030 report includes a central estimate for gas price at 101p/therm and an ETS price assumption of £142/tonne, as well as an additional £25/tonne tariff for fossil-generated power to disincentivise exports of unabated power.

“Energy intensive industries will not be able to bear these carbon costs as long as there is no effective UK CBAM without loopholes and there are no commercial decarbonisation technologies available,” the letter states.

It also expresses concern over NESO’s proposed approach to fast-tracking grid connection for Clean Power 2030 which prioritises connecting low carbon power over industrial decarbonisation projects. It calls for industrial decarbonisation to be given the same priority as electricity decarbonisation in terms of network connections.

Carrie Bone UK