Exemptions for energy intensive industries: consultation

Renewables Obligation (Scotland): Consultation on implementing an exemption for Energy Intensive Industries from the indirect costs of the Renewables Obligation Scotland

Introduction

1. The UK Government announced in the Spending Review 2015 ^[1] that "the government will provide an exemption for Energy Intensive Industries, including the steel industry, from the policy costs of the Renewables Obligation and Feed-in Tariffs, to ensure that they have long-term certainty and remain competitive."

2. The Scottish Government supports these measures in reducing indirect costs from climate polices to help to ensure the international competitiveness of Energy Intensive Industries ( EIIs) as they seek to reduce their direct emissions under policies such as the EU Emissions Trading System, as part of the transition to a low carbon economy.

3. Given that elements of the UK Government's proposals would require amendments to the operation of the Renewables Obligation in Scotland, which is devolved, the Scottish Government is now consulting alongside the UK Government on the changes necessary to legislation to enable the exemption.

Proposed exemption for EIIs from the indirect costs of the RO and FIT scheme

4. The Department of Energy and Climate Change ( DECC) has published a consultation document which asks a number of questions regarding the implementation of an exemption scheme for eligible EIIs from the indirect costs of the Renewables Obligation ( RO) and the small scale Feed-in Tariff ( FIT) schemes.

5. DECC's consultation relates to a proposal to implement an exemption in relation to the FIT scheme in Great Britain and in relation to the RO in England and Wales. In order to ensure that the proposed new arrangements can apply across GB, the consultation notes that "the Scottish Government are consulting separately on proposals to implement the exemption in relation to the RO in Scotland" as this is overseen by the Scottish Government.

6. DECC's consultation closes on 27 May 2016 and is available to view via the following link:

https://www.gov.uk/government/consultations/implementing-an-exemption-for-energy-intensive-industries-from-the-indirect-costs-of-the-ro-and-the-fits

7. This document does not reproduce the text and proposals contained within DECC's consultation document, however stakeholders may wish to note the following arrangements which will apply across GB:

• EIIs are currently supported by the UK Government through a compensation scheme for the indirect costs of the RO and FITs together with an exemption from the indirect costs of Contracts for Difference (CfD) ^[2] . The UK Government's proposal is to transition from the current RO and FIT compensation scheme to an exemption scheme through changes to legislation.
• Eligibility for the RO and FIT exemption scheme will be based on the current EII eligibility criteria for the RO and FIT compensation scheme and the CfD exemption. This includes a sector test and a business electricity intensity test for each business.
• The Department for Business, Innovation and Skills will continue to administer the scheme.
• DECC's Impact Assessment ^[3] provides estimates of the benefits and costs of the proposed exemption and is based on implementation of the EII exemption scheme across GB.

Purpose of this consultation paper

8. The operation of the RO Scotland is overseen by the Scottish Government. To implement the proposed EII exemption scheme across GB, changes to the Renewables Obligation Scotland legislation will be required. In order to ensure that EIIs operating all or in part within Scotland can benefit from the proposed GB-wide exemption, our intention is to follow the same approach as DECC and introduce identical provisions and requirements as in England and Wales - unless compelling evidence or arguments are presented to the contrary.

9. The methodology for setting the RO obligation level in respect of electricity supplied in Scotland (set out in Part 2 articles 7 to 13 of the Renewables Obligation (Scotland) Order 2009 as amended ^[4] ) will be amended to mirror the approach taken in England and Wales. The detailed changes needed to the RO setting methodology are set out in Annex A of DECC's consultation document.

10. The worked example of proposed changes to the RO methodology set out in Annex B of DECC's consultation document assumes that Scotland will implement the exemption in the same way as in England and Wales.

11. We would like to hear and receive the views of consultees on the decisions in relation to implementing the exemption for EIIs as a consequence of the UK Government's proposals, as they relate to the RO Scotland.

Next steps

12. Following the closing date, all responses will be analysed and considered along with any other available evidence to help us reach a final position. Subject to stakeholder's views, state aid and the approval of the Scottish Parliament, if we decide to proceed with the proposals we intend to bring them into effect from
1 April 2017, in line with the UK Government's plans. We will confirm the intended timetable in the government's response to this consultation.