Energy prices have been at the top of the Government’s agenda following the 2022–23 and 2026 energy price spikes, as highlighted by the 2026 Budget announcements. Due to the nature of their activities, energy-intensive industries have been particularly affected. Lilia Akatova, Stefania Cerruti and Neïla Khelifi outline how the Government could streamline and optimise the design of energy support schemes targeting these industries to ensure that firms receive the right level of support, while acknowledging potential impacts on consumers and aligning with climate objectives.
The 2026 Budget reaffirmed the Government’s focus on high energy prices and confirmed its support for the British Industrial Competitiveness Scheme (BICS), which will cut electricity costs for eligible businesses from April 2027. However, BICS joins an extensive list of schemes supporting energy-intensive industries (EIIs), and the question remains whether they work well together, while delivering for climate change mitigation, resilience and industrial competitiveness. But what exactly are EIIs, why do they matter to the UK’s economy and what support have they received to date?
While the exact list of sectors that fall under energy-intensive industries varies over time and place, these usually include manufacturing, mining, steel, paper and plastics. These sectors are seen as key components of the industrial base, as they supply inputs to a broad range of downstream sectors.
In the UK, EIIs’ exposure to recent energy price shocks has been particularly severe, with businesses now facing some of the highest energy prices among members of the International Energy Agency (IEA). Factors driving up energy prices include the UK’s reliance on the volatile market for imported gas; high network costs and levy rates; and a relative lack of integration into the European electricity market.
Why the impact of high energy prices on EIIs matters to the wider UK economy
As highlighted by the October 2026 Office for Budget Responsibility’s Economic and Fiscal Outlook, high energy prices can have wide-ranging effects on the UK economy, raising costs for firms and pushing up consumer price inflation. When it comes to high industrial energy prices, these erode a firm’s activity, productivity and ability to remain competitive in global markets, especially if international competitors have more diversified energy sources and are more protected against energy price shocks. These shocks can negatively affect the UK’s overall economic growth, employment in energy-intensive firms and welfare.
Recent UK policies recognise that high energy prices can lead upstream industries to relocate to jurisdictions with lower costs and weaker climate protection policies, which may impact employment, growth and global emissions-reduction objectives. With EIIs producing about 10% of the UK’s total CO2 emissions, high energy costs also limit firms’ investment capacity. This could slow the transition to low-carbon infrastructure in the UK, which requires high upfront investment.
There are also significant distributional implications to account for when considering how governments support EIIs. Some schemes mitigating the impact of soaring energy prices may result in direct or indirect transfers from non-eligible firms or households, as is the case, for example, with the UK British Industry Supercharger (BIS). Since BIS is designed as a transfer of costs between consumers within the electricity system, the reduction of costs for EIIs leads to a cost increase for other electricity users.
UK government support to EIIs and implications for policy objectives
Over the past decade, the UK government has supported EIIs through measures including tax and network charge exemptions, electricity price subsidies and compensation for indirect carbon costs. Key active policies and one due to come into force next year are as follows.
First, the EII compensation scheme, active since the mid-2010s, provides compensation to offset EIIs’ carbon costs (such as those related to the UK Emissions Trading Scheme or Carbon Price Support). It aims to prevent carbon leakage and protect businesses from high indirect carbon costs. To be eligible, a business must manufacture a product in the UK within an eligible sector (such as paper, chemicals, copper or aluminium) and pass a filter test showing that its indirect carbon costs amount to 5% of its GVA or more.
Second, the British Industry Supercharger (BIS) provides a 100% exemption from the indirect costs of the Renewables Obligation, Contracts for Difference, the Feed in Tariff and the Capacity Market, along with compensation to offset 90% of network charges. Its objective is to reduce electricity cost disparities between British EIIs and international competitors, limiting carbon leakage. BIS came into force in 2024 while the Network Charging Compensation Scheme started in April 2025 and is ongoing. (The exemptions listed existed in a different format from 2017 to 2019.)
Third, the incoming British Industrial Competitiveness Scheme (BICS), which will operate from April 2027, is designed to protect and increase investment for IS-8 manufacturing and frontier industries that use at least 33 MWh of electricity per year at the manufacturing site, while boosting supply chain resilience. It will provide a tiered exemption (0%, 50%, 100%) from the indirect costs of the Renewables Obligation, Capacity Market and Feed in Tariff. Eligible firms will also receive a one-off backdated payment for energy costs incurred between April 2026 and April 2027.
Finally, Climate Change Agreements that have been in place since 2001 aim to improve energy efficiency and reduce CO2 emissions across EIIs while maintaining the competitiveness of eligible industries. These are voluntary agreements between the Government and industry to reduce energy use and emissions. In return, businesses pay a reduced climate change levy. More than 50 sectors are eligible, including steel, cement, chemicals, plastics, brewing, printing, ceramics and textiles.
The intricacies of the EII support system are clear from the detail above: some firms are eligible for overlapping schemes, such as the BIS and BICS, which both offer exemptions from the costs of the Renewables Obligation, Feed-in-Tariffs and Capacity Market. Finding the right balance is difficult, as governments often seek to reconcile several conflicting policy objectives that go beyond price support, such as accounting for fiscal constraints, distributional impacts, firms’ competitiveness, decarbonisation, and global trade dynamics and partnerships.
Systematic government evaluation needed
There is space for the UK Government to rethink its approach by evaluating how these schemes have operated together as a policy package. While evaluations of some of the schemes have been published, there is an apparent lack of evidence on how such interventions interact with one another. This kind of systematic evaluation is particularly important given that some of the schemes, such as the EII compensation scheme and the BIS, target the same industries in the same time periods. Furthermore, the available evidence suggests that existing schemes only include limited conditionality regarding climate protection and industrial decarbonisation. Without explicit decarbonisation requirements, energy price discounts may weaken business incentives to reduce energy intensity or improve efficiency. This limits our understanding of how these policies protect firms, restrict the cost pass-through to consumers and incentivise the shift towards the Government’s decarbonisation commitment – highlighting the need for further research.
Given that the Government’s new budget has acknowledged the challenges posed by high industrial energy prices and reiterated the importance of the BICS for lowering energy bills for industry and the wider UK economy, understanding how previous schemes have performed and interacted is going to be critical. In a constrained fiscal environment, the Government will want to optimise its support for the UK’s industrial base. A significant gap currently exists in how these schemes are assessed, limiting our understanding of where policies supporting EIIs overlap and potentially resulting in a suboptimal allocation of resources. Closing this gap would help streamline industrial energy support and improve policy coherence, giving UK businesses consistent regulatory signals, while balancing competitiveness, decarbonisation and resilience.
Further work from CETEx on industrial energy support
In 2027, we will address these issues in a new policy report reviewing industrial energy support schemes in the UK in the last 10 years. Our work will aim to provide policymakers, academic stakeholders and industry bodies with a framework for comparing different schemes, and to support the Government by outlining lessons for the design of future support schemes that help protect firms and households from increasing energy costs.
The authors would like to thank Daisy Jameson, Sini Matikainen, Rob Patalano, Chris Raggett and Georgina Kyriacou for their review of this commentary.