Revamped Compensation Structure for ETS and CPS Mechanism: Implications for UK Aluminium Industry

by APAZONE
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Recent adjustments to the Emissions Trading Scheme (ETS) and Carbon Price Support (CPS) compensation calculation method are poised to significantly impact the UK aluminium sector.

In the wake of recent alterations to the calculation methodology for Emissions Trading Scheme (ETS) and Carbon Price Support (CPS) compensation, the repercussions for the UK aluminium industry loom large. ALFED, recognizing the need to inform its members, has compiled a comprehensive guide shedding light on the intricacies of the scheme, the recent adjustments, and crucial measures aluminium producers must take to fully capitalize on available compensation.

The compensation scheme, initiated by the Department for Business and Trade (DBT) in 2021, aims to provide financial relief to manufacturing sectors with high electricity consumption. This relief offsets indirect costs linked to the implementation of low-carbon schemes, namely ETS and CPS. Acknowledging the potential impact of these mechanisms on wholesale electricity prices and the risk of carbon leakage for electricity-intensive businesses, the government began compensating eligible industries, including aluminium production, subject to the “5% filter test.”

While the eligibility criteria remain unchanged, the method for calculating compensation has undergone revision. Notably, this adjustment affects producers of unwrought aluminium alloys, who previously enjoyed a higher rate of relief. As of April 1, 2024, these producers now face potential reductions in compensation, signaling a significant financial shift for certain members of the aluminium industry.

The DBT has released detailed information on how compensation is determined for unwrought aluminium producers. Existing compensation recipients in this sector should promptly calculate the new rate, effective from April, while those yet to apply can pre-calculate anticipated compensation figures.

Navigating this niche, energy-based compensation scheme has proven challenging, with many companies, even within ALFED and the broader UK aluminium industry, unaware of its existence. Urging proactive engagement, companies, including those dealing with unwrought aluminium, should apply for compensation, even if at a reduced rate. Key steps include confirming eligibility within eligible sectors, meeting the 5% benchmark, and assessing the mean average over the past five years.

However, the process isn’t as straightforward as it seems. The intricate supporting document, spanning approximately 8,000 words, outlines various scenarios where claims have been successfully made, even if conditions weren’t met. To navigate this complexity, industry consultants like Leyton can offer valuable guidance, helping companies maximize compensation benefits.

Source: Apazone

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