What Does EII Mean?

Energy Intensive Industries (EII) refer to the industrial sector, typically manufacturing, engineering, and mining, which are classed as ‘high users’ of energy. This is when energy costs make up a significant proportion of your overall production costs, overtaking costs such as labour.

If your business is within the industrial or manufacturing sector, your company may be within the Energy Intensive Industries bracket.

What is the EII exemption scheme?

The EIIs exemption scheme is a form of tax relief that allows eligible EII companies to receive exemptions for indirect costs of funding the following three renewable policies:

• Contracts for Difference (CfD)
• Renewables Obligation (RO)
• Feed-in Tariffs (FIT) schemes

Each of the above schemes are designed to encourage investment in low carbon and renewable energy production, supporting the UK’s decarbonisation strategy.

Where EII companies are exposed to the policy fees, it effectively increases the cost of a production/manufacturing process, putting them at a competitive disadvantage. If EIIs are required to pay 100% towards the schemes in support of the Government’s Net Zero targets, it’s likely this will increase the risk of carbon leakage.

The exemption scheme has been created to ensure the UK industrial and manufacturing industries remain competitive within the global market. It is also to prevent any setbacks to the 2050 net zero emissions target by preventing carbon leakage.

The scheme was extended by the UK Government to at least 31 March 2025 where payments can be backdated as far as 1 April 2022.

You can download our EII Schemes quick guide here: Energy Intensive Industries Schemes

What is carbon leakage?

Carbon leakage occurs when, due to the high costs relating to climate policies, a business moves their manufacturing/production to a country that has a less strict emissions policy. By transferring production to a country that has little or no climate change mitigation policies, there would be a higher emission output than if the company had not moved country.

EII eligibility and application

There are certain requirements that must be met for a business to be approved as eligible for an EII certificate for exemption.

1. The electricity cost impact on manufacturing/production must be equal to or higher than 20% of their Gross Value Added (GVA) over a relevant period – known as the ‘business level test’
2. Evidence must be provided showing the amount of energy consumed to manufacture the product for a period of at least three months
3. Applicants must manufacture a product within the UK in an eligible sector that has a specific 4-digit NACE code – ‘sector level test’
4. Finally, the applicant must have two quarters of financial data (at least)

The EII exemption scheme covers eligible energy-intensive sectors within England, Wales and Scotland but does not include Northern Ireland.

What sectors qualify as an Energy Intensive Industry?

Most of the qualifying EII businesses are from manufacturing industries, including:

• Wood
• Paper
• Rubber
• Glass
• Plastics
• Metal production
• Metal casting and processing
• Battery production
• Malts
• Grain milling
• Chemical production
• Fertiliser production
• Ceramics
• Cement
• Refectory products
• Animal feed
• Poultry processing

The full list of sectors that qualify for the ‘sector level test’, along with their 4-digit NACE codes (which are needed for the sector level test) are listed within this document.

EII Certificates

If your businesses exemption application is successful, you will receive a certificate setting out the details of your exemption.

Once approved for discount/eligibility, your certificate is usually valid for one year and it’s important to note that your business is responsible for reapplying before your existing EII certificate expires.

All successful exemption applicants will be automatically eligible for the Networking Charging Compensation Scheme which starts in April 2025.

Our energy team have a wealth of experience in successfully helping eligible businesses unlock the maximum amount of exemption that they can receive – this is a significant portion of energy costs.

We offer an end-to-end service: we’ll put together your entire claim, handle all the administration and submit your completed application to the government. It’s a simple process that only takes us a matter of days.

How is the EIIs exemption scheme calculated?

The discount is calculated as the difference between the wholesale price associated with an energy contract and the price threshold.

Effective from 1 April 2024, the EII exemption rate increased from 85% to 100%.

You can find out how much you can claim by speaking to one of our energy tax experts, simply get in touch.

What is the EII Compensation Scheme?

The EII Compensation Scheme differs from the EII Exemption Scheme in that it compensates eligible businesses for the indirect costs incurred specifically due to:

• The UK Emissions Trading Scheme (UK ETS)
• Carbon Price Support (CPS)

The EU/UK ETS compensation was initially introduced in 2013 and CPS compensation introduced in 2014 with the same objectives as the exemption scheme, to aid businesses to remain competitive globally and to also prevent carbon leakage.

The UK Government extended the scheme for another three years in April 2022, now running until 31 March 2025.

EII Exemption vs EII Compensation

Exemption

• Reduction in costs
• Wider range of qualifying industries
• Strict qualification requirements
• Discount on bills going forward

Compensation

• Direct payment
• Targets most at risk sectors
• More flexibility when applying
• Paid by Government directly

Share your thoughts

We hope that our overview of Energy Intensive Industries has been both interesting and valuable. Share your thoughts on this subject or any other energy-related matters with us via email at [email protected].

How can Consultiv Utilities help Energy Intensive Industries?

We’re here to support large energy-intensive users with their energy and carbon requirements. We have extensive knowledge and understanding of current policy, legislation and energy management best practice. As a leading energy consultant, we can provide you with a professional, bespoke service, where you can gain valuable insight and overall control of your energy costs.

Get in touch with one of our team for a free consultation.