EII Explained: Everything You Need To Know About The Energy Intensive Industries (EII) exemption scheme

06-09-2022

By Mohamed Eljaouhari

Applying for an EII certificate through the EII exemption scheme will mitigate the rising cost of energy bills for industries that are high energy users. This article provides EII scheme guidance by answering frequently asked questions about the Energy Intensive industries (EII) exemption scheme to help businesses understand if it’s the right energy tax relief scheme for them.

What does EII mean?

EII stands for Energy Intensive Industries. The UK Government defines Energy Intensive Industries as “industrial sectors – usually manufacturing industries – that are high users of energy”. Energy Intensive Industries have a high proportion of fuel energy costs over other costs such as labour, as part of their overall production costs.

What is the Energy Intensive Industries (EII) exemption scheme

The UK Government supports high energy usage business with their electricity costs through the Energy Intensive Industries (EII) exemption scheme. The scheme is a form of energy tax relief that allows eligible companies to reduce their energy bills through an exemption on taxes that fund low-carbon and renewable support schemes. Energy Intensive Industries tend to be manufacturers such as steel and chemical producers.

Why was the Energy Intensive Industries (EII) scheme created?

Businesses’ electricity bills include a series of taxes that fund renewable energy schemes, which help pay for the UK Government’s Net Zero Strategy for decarbonising the UK economy by 2050. These renewable energy schemes fund renewable energy generation (solar, wind, solar, hydro and nuclear power). There are three different schemes:

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

These taxes put UK businesses at a competitive disadvantage internationally, so there is therefore a risk that these firms could move production abroad to countries with lower emission curbs. This is known as ‘carbon leakage’ and would defeat the point of trying to cut global greenhouse gas emissions. To lower the risk of carbon leakage, the UK Government created the Energy Intensive Industries (EII) exemption in 2016. The EII scheme mitigates the impact of renewables policies allowing businesses to stay competitive internationally.

Is the Energy Intensive Industries (EII) exemption scheme a compensation scheme?

The EII scheme is not technically a compensation scheme. Instead, it reduces renewable energy (electricity) related taxes by exempting eligible companies from having to pay by providing them with an exemption certificate. There is a separate UK Emissions Trading Scheme (UK ETS) that acts as a compensation scheme where you receive compensation payments periodically.

What is an EII certificate?

The UK Government offers relief for Energy Intensive Industries in the form of an EII certificate, exempting them from the indirect costs of renewable energy taxation schemes.

Qualifying businesses receive an EII certificate, which confirms that they are eligible for Contracts for Difference (CfD), Renewables Obligation (RO) and small-scale Feed-in Tariffs (FIT) exemption. To receive the exemptions businesses must pass the EII certificate to their electricity provider.

What are the eligibility requirements for the EII exemption scheme?

The UK Government guidance lists two tests for determining whether a business is eligible for an EII certificate. These include:

  • The sector level test: The business must manufacture a product in the UK within an eligible sector that has a specific 4-digit NACE code (see the below section on qualifying sectors)
  • The business level test: The business must pass a 20% electricity intensity test

Beyond these tests, businesses must also:

  • not be an Ailing or Insolvent Economic Actor (AIEA)
  • have at least two-quarters of financial data
  • have at least three months’ worth of evidence of the proportion of electricity used to manufacture their product

What sectors qualify for the Energy Intensive Industries (EII) scheme?

Most of the qualifying Energy Intensive Industries 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 the UK Government’s EII guidance for applicants.

How long is an EII certificate valid for?

EII certificates are valid for one year. Businesses must reapply for a certificate on a yearly basis, applying for a new one before their current certificate expires.

How much will my business receive through the EII exemption scheme?

Businesses eligible for the Energy Intensive Industries exemption scheme can claim for 15-30% of the costs of their total energy bills. You can find out how much you can claim by speaking to one of our energy tax experts.

How long will the UK Government run the EII exemption scheme?

The UK Government has recently extended the length of the EII exemption scheme to at least the 31st of March 2025, with payments backdated to 1st of April 2022.

Are there any examples of successful EII exemption scheme applicants?

Read our Food Packaging Manufacturing case study for an example of how we’ve helped businesses successfully receive energy tax relief through the Energy Intensive Industries (EII) exemption scheme.

Is the EII exemption scheme the right energy tax relief scheme for my business?

The Energy Intensive Industries (EII) exemption scheme is one of several energy tax relief schemes offered by the UK Government. To find out more about the different energy schemes, read our UK energy crisis tax exemptions guide for high energy businesses on how to cut rising energy price costs.

How can my business apply for EII exemption?

Our Energy Team has 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.

Keen to find out more?

Speak to our team

Author

Mohamed Eljaouhari

Head of Energy