Also known as the EII Compensation Scheme, the Compensation for the Indirect Cost of the UK Emissions Trading Scheme helps energy intensive UK businesses remain competitive against global prospects. This guide breaks down everything you need to know about the scheme in order to apply.

What is the EII Compensation Scheme?

Carbon pricing and emissions trading schemes increase costs for electricity generators because they have to buy allowances for the emissions they cause. These costs are then passed on to consumers, and energy-intensive industries pay more because of their higher consumption. This could lead to a significant price differential between the UK with its emissions trading scheme and countries which have lower or zero pricing for carbon. The EII compensation scheme is designed to help UK businesses stay competitive globally and reduce the risk that they will move overseas to territories with a lower carbon price.

Who benefits from the EII compensation scheme?

Businesses in certain energy-intensive sectors are eligible for the scheme. You need to establish that you manufacture a product which has one of the relevant SIC (standard industrial classification of economic activities) codes. The categories are updated periodically and listed in the official guidance.

The EII compensation scheme does not operate in Northern Ireland.

Does my business qualify for the EII compensation scheme?

To qualify for the scheme, as well as being in an eligible sector, your business has to pass the “5% test”. This means proving that the indirect carbon costs of the business amount to more than 5% of its Gross Value Added. Calculations should be based on the most recent five years of accounting data, unless a business has been operating for less time than this. The official guidance has information on how to calculate this.

How do I apply for the EII compensation scheme?

The official guidance has details on how to apply and worked examples to help you calculate the compensation due to your business.

What if my business carries out a mix of activities?

As with the EII exemption scheme, your business is still eligible, but only in relation to the proportion of its activities which count as eligible. As with the exemption scheme, you will need to identify the proportion of electricity usage which is connected to producing eligible products, ideally through metered records.