CO2 prices set to rocket five-fold

22 September 2021

The price of carbon dioxide is set to increase five-fold as the UK government pays out millions to restart production.

Environment secretary George Eustice, discussing the deal struck with US fertiliser firm CF industries, warned the price of CO2 will rise from around £200 per tonne to £1,000.

He told BBC Radio 4: "We need the market to adjust, the food industry knows there's going to be a sharp rise in the cost of carbon dioxide, probably going from something like £200 a tonne eventually up to closer to £1,000 a tonne, so a big, sharp rise."

He warned these price increases would be passed onto the industry. 

Eustice insisted increased costs for CO2 would not have a "significant impact" on food prices, but admitted food prices were increasing "due to global commodity prices, oil prices and also other factors such as labour shortages”.

CF Industries halted fertiliser production, from which CO2 is a by-product, after soaring natural gas prices meant it was no longer profitable. 

The government announced it would help fund operating costs of the firm’s Billingham plant for three weeks, costing the taxpayer "tens of millions" of pounds. 

Eustice said the move will “ensure that two critical plants that produce carbon dioxide, which is critical to our food supply chain, continue to operate. And therefore, sectors like the poultry sector, meat processes in poultry and pigs can get access to the carbon dioxide they need".

He added: “If we didn't there would be a risk to our food supply chain. That's not a risk that the government is willing to take.”

Food and drink manufacturers had warned shortages would arise if the government did not take immediate action, as carbon dioxide is needed for the production of fizzy drinks and beer and for stunning livestock before slaughter.

Ian Wright, chief executive of the Food and Drink Federation, said: “If production can restart at appropriate scale before the end of the week, this should be enough to ensure pig and poultry production can continue as normal. There will be some shortages, but these will not be as bad as previously feared.”

A British Meat Processors Association spokesperson said: “If we are to return to a normal functioning of the CO2 market, there will need to be some complex discussion on how to renegotiate and restructure CO2 supply and pricing in the UK. 

“Over many years, we have had a major consolidation of the industry resulting in sectors like food and drink, nuclear and health being reliant on a very small number of very large suppliers. If a market-based solution is to be found, it will likely involve longer-term higher prices for CO2 which will be sustainable for some but not all users of the gas.” 

Meanwhile, British Steel has warned electricity prices are “spiralling out of control” with up to a 50-fold increase in quoted rates.

The International Energy Agency (IEA) has called on Russia to send more gas to Europe as prices rise to their highest levels in over a decade.

The IEA said Russia’s gas exports to Europe were down from 2019 levels, while gas storage levels in Europe are well below the five-year average.

It said: “The IEA believes that Russia could do more to increase gas availability to Europe and ensure storage is filled to adequate levels in preparation for the coming winter heating season.”

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