Carbon dioxide supply deal agreed between government and firms

A deal to avert another carbon dioxide crisis in the food and drink industry has been extended until early 2022.

US firm CF Industries, a key CO2 producer in the UK, has agreed to continue supplies of the gas.

It said that should give the government and firms time to find other sources of CO2, used in fizzy drinks and for keeping food fresh, as well as to stun pigs and chickens before slaughter.

Firms will now have to pay more for their CO2, but it is unclear how much.

Last month, the government stepped in to subsidise one of the firm's plants after its shutdown due to high gas prices threatened food supplies.

CF Industries suspended production at two sites - Cheshire and Billingham - which make 60% of the UK's commercial carbon dioxide.

It reopened its Billingham plant in north-east England after the government agreed to meet the costs of running it for three weeks.

Billingham produces up to 750 tonnes of CO2 per day as a by-product of producing ammonia for fertiliser. CF Industries' plant at Ince in Cheshire remains closed with no date given for a reopening.

The government said: "CO2 suppliers have agreed to pay CF Fertilisers a price for the CO2 it produces that will enable it to continue operating while global gas prices remain high, drawing on support from industry and delivering value for money for the taxpayer."

The agreement meant industry could have confidence it would receive future CO2 supplies, without further taxpayer support, said the government.

The British Meat Processors Association said the agreement provided "some reassurance that supplies will be maintained".

"However, industry has been given no detail on what the price will be or how it will be calculated going forward," a spokesperson added.

"We understand that Business Secretary Kwasi Kwarteng took the decision to temporarily exempt parts of the CO2 industry from competition law to facilitate this agreement. What we need now is some detail and transparency around how the new pricing structure will work."

• Why are gas prices so high?

• Minister asks Treasury to help firms over gas cost

• What's CO2 used for in food and drink?

Ian Wright, chief executive of the Food and Drink Federation, said the agreement was "welcome news".

But he added: "The increased cost of buying CO2 is yet another burden on the food and drink industry, which is already facing enormous stresses.

"This will, of course, add more pressure on prices for shoppers and diners."

Analysis

By Ben King, business reporter

It looks like there will be enough CO2 to keep Christmas beers bubbly - but after that, there are no guarantees.

There's an ominous line in the CF Industries press release. They expect CO2 users to develop "robust alternative sources" between now and January.

That won't be easily done. Lots of industrial processes produce CO2, but few produce a stream so pure and reliable that you'd want to dissolve it in your lemonade.

Distributor Nippon Gases has warned that supply is tight across Europe, so imports will be hard to come by.

The government says that the firms which need the CO2 from Billingham will be paying more for it - and whatever long-term solution does emerge, it's likely to be more expensive too.

But the UK only needs about 600,000 tonnes of CO2 a year. At about £200 a tonne before the current crisis, that's about £120m, relatively small beer for industries that count their turnover in the billions.

Compared to the other pressures those industries face - staff shortages, and higher costs for energy and shipping - more expensive CO2 is an extra cost they don't need, but it won't be their biggest headache.

When CF shut its facilities after making fertiliser became uneconomic because of the rising price of wholesale gas, it cut off a vital source of CO2 for other sectors.

Supermarkets began reporting limited stocks of some food items, while the pig industry warned that if slaughterhouses could not process animals, then farmers would have to cull their stocks.

The US firm said it now expected the UK government and industrial gas customers to "develop robust alternative sources of CO2 as part of a long-term solution for meeting demand in the country".

Last month, it emerged the British food industry would be forced to pay five times more for carbon dioxide as part of a government deal with CF Industries to restart production in the UK.

Environment Secretary George Eustice said carbon dioxide prices would rise from £200 per tonne to £1,000.

Households, too, are being hit by higher energy bills, with those on standard tariffs, with typical household levels of energy use, seeing bills go up by £139 to £1,277 a year on average.

Several energy suppliers, unable to pass on wholesale prices to consumers on fixed deal, have gone out of business. Their customers have been switched to other suppliers, but will be put on variable contracts that will be higher than previous deals.

Support

Meanwhile, the business department has sent the Treasury a formal request for support for energy-intensive industries hit by high gas prices, the BBC understands.

It came after talks between ministers and industry leaders earlier on Monday.

A source said: "Everyone in government understands the importance of this situation.

"We need to solve this quickly."

Details of the proposal from Mr Kwarteng have not been disclosed but are thought to focus on a temporary solution to high energy prices.

On Sunday, Mr Kwarteng told the BBC's Andrew Marr programme the situation was "critical" and said he was "looking to find a solution".

Mr Kwarteng said there were Treasury talks about support measures to ease the impact on firms. However, a Treasury source later said the business secretary had been "mistaken".

Sectors such as ceramics, paper and steel manufacturing have called for a price cap, though talks with government on Friday failed to reach a solution.