Policy background Part 7: Market Reform and Consumer Protection Energy Intensive Industries
On 23 February 2023, the Government announced the British Industry Supercharger, a decisive set of measures to make Britain’s strategic Energy Intensive Industries (EIIs) more competitive and tackle the challenge of indirect carbon leakage. This is targeted to be achieved by addressing three areas of the domestic energy system which together contribute to higher electricity costs for GB EIIs. Sections 211 and 212 refer to the third of these measures which aims to reduce electricity prices for EIIs by £10/MWH through the creation of the Network Charging Compensation Scheme which will compensate EIIs for a portion of their network costs. The sections will also establish a levy on licensed electricity suppliers to fund the compensation payments.
	In recent years, GB EIIs have faced the steepest industrial electricity prices in Europe, even with existing Government support schemes applied, primarily due to a long-term disparity in network and policy costs. On average, Ofgem analysis found that GB EIIs faced electricity prices that were 50% higher than their EII counterparts in France and Germany and nearly 40% higher than in the Netherlands.
	This is a particular issue for EIIs, for whom the resulting cost differential in electricity prices puts them at an international competitive disadvantage and increases the risk of having to rely on import markets, sourcing goods from territories with less stringent climate policies which would come with associated job losses and a loss of investment and increases the risk of carbon leakage.
	Carbon leakage is defined as the movement of production and associated emissions from one country to another due to different levels of decarbonisation effort through carbon pricing and climate regulation. As a result of carbon leakage, the objective of decarbonisation efforts would be undermined.
	The industries impacted include companies in strategically important sectors such as steel, metals, chemicals, paper and other foundational industries that employ hundreds of thousands of skilled workers across the UK and support many more in the supply chain. This puts the UK at risk of significant job loss and disinvestment in these sectors, and means the UK is disadvantaged in attracting inward investment, as similar costs are exempted from most energy intensive industries in comparable neighbouring countries.