According to Reuters, the UK government stated on Monday that it will reduce subsidies for businesses to help them weather the energy crisis by 85%, claiming that the existing level of support was “unsustainably expensive.”
However, the cuts might endanger another form of sustainability. According to energy consulting firm Cornwall Insight, forcing businesses to pay more for their energy bills may make it more difficult for them to invest in greening their operations to meet the UK government’s objective of achieving net-zero emissions by 2050.
The CEO of Cornwall Insight, Gareth Miller, responded to the news on Tuesday, saying, “[A]side from the impact on the financial integrity of businesses that will arise from the EBDS [Energy Bill Discount Scheme], the government must also weigh up the constraints on the capacity of the UK business sector to invest significantly in the decarbonization of business and industry.”
The UK is presently assisting businesses through a program known as the Energy Bill Relief Scheme in the middle of an energy price surge that was partly brought on by Russia’s invasion of Ukraine (EBRS).
According to the Financial Times, this has limited energy costs to 211 per megawatt (MWh) hour for electricity and 75 per MWh for gas for the six months ending March 31, costing a total of 18 billion. However, according to The Independent, extending this agreement into April would have cost the government tens of billions of pounds.
According to The Independent, Exchequer Secretary to the Treasury James Cartlidge warned lawmakers that the amount of corporate support the Exchequer is now providing is not sustainable.
According to Cornwall Insight, the government will swap out EBRS for something called the Energy Bill Discount Scheme (EBDS). According to the Financial Times, this offers businesses an electricity discount of 19.61 per MWh at wholesale rates of more than 302 per MWh and a gas discount of 6.97 per MWh at prices of more than 107/MWh.
According to Reuters, the plan will cost the government 5.5 billion overall and last until March 2024. According to The Guardian, it will apply to all non-domestic energy users, including schools and NGOs.
Particularly small firms expressed concern about how the reduction in support might affect them.
According to Martin McTague, national chair of the British Federation of Small Businesses, “many small businesses will not be able to survive on the pennies offered by the new form of the plan.”
Although energy prices have roughly returned to where they were at this time last year, they are still significantly higher than they were at the beginning of 2021.
Miller observed that even for companies that do not face an existential threat, the decline in support could force them to reduce spending for decarbonization. Miller asserted that decreasing business emissions will require enormous investments over the next ten years.
Some bigger, stronger businesses will still be able to carry out their plans. However, he argued that many may now be unable to generate borrowing capacity or free cash flow, at least over the next few years, while they deal with this concoction of cost difficulties.
Miller said that the government could make up for the absence of energy support by modifying the structure of the energy markets and providing incentives for decarbonization through taxes, investments, and other benefits.