Why is the UK bailing out US CO2 supplier CF Fertilisers? | Supply chain crisis

Ministers have tried to avert a supermarket stock shortage crisis by using taxpayer money to bail out a private US firm that produces carbon dioxide.

The emergency deal was designed to stop the UK’s supply chains grinding further to a halt, and will last for three weeks.

It is a complicated issue that cut across political decisions, energy prices and access to food. So what does it all mean and why does it matter?

What was the issue?

The UK relies heavily on two plants to make most of its carbon dioxide, operated by CF Fertilisers in Teesside and Cheshire. These supply about 60% of CO2 that the UK needs for making fizzy drinks including beer, stunning animals before slaughter for meat production and making dry ice to keep food fresh for storage and transport.

CF Fertilisers makes the gas as a byproduct of its main output – fertiliser – but its two operations ground to a halt last week when the cost of wholesale gas prices rocketed.

Iceland supermarket’s managing director, Richard Walker, said problems would begin in days – not months, adding: “This is no longer about whether or not Christmas will be OK, it’s about keeping the wheels turning and the lights on so we can actually get to Christmas.”

The shortages also poured fuel on the fire of much greater problems with supply chains, caused in part by a lack of labour – from fruit pickers on farms to lorry drivers who deliver the goods.

Poorer people were already bracing for a difficult winter, with the cut to the £20 universal credit uplift looming and Boris Johnson’s 1.25 percentage point increase in national insurance contributions for workers and businesses.

In an attempt to head off headlines harking back to the 1970s questioning whether the government could keep the lights on, ministers intervened.

What did the government do?

Talks were held to try to get CF Fertilisers to restart production and late on Tuesday night, it was announced operations would resume immediately at its Billingham plant in Teesside, though the Cheshire site will remain closed.

The details remain a secret, but the Department for Business, Energy and Industrial Strategy said it had brokered a deal to “ensure the continued supply of CO2” – calling it an “an essential component of the national economy”.

It was hailed as an “exceptional, short-term agreement” with the private US company, lasting just three weeks, that would see taxpayer cash used to provide “limited financial support” for CF Fertilisers’ operating costs while the market “adapts to global gas prices”.

The bill will run to “many million, possibly tens of millions”, the environment secretary, George Eustice, told Sky News on Wednesday. He told the BBC: “I’m not going into the precise figure because government lawyers are working on the terms of the deal … it’s a commercial arrangement.”

What happens after the three-week deal expires?

Eustice said a “perfect storm” had been created because other factories that produce CO2 were also closed – but that when they reopened in a few weeks’ time, the market would be able to readjust.

He said: “There is another factory in the UK, but that’s currently closed for maintenance. There’s also another factory that we often get supplies from in Norway, that’s also closed for maintenance.

“So we have this perfect storm of two plants closing because they don’t have a market for their fertiliser and because prices have risen, and because two other plants are currently closed for maintenance. Once those plants reopened, then we’ll be back into a properly functioning normal market.”

Jonathan Brearley, the chief executive of the energy regulator, Ofgem, said the wider issue of wholesale gas prices would not go away.

He told MPs at a select committee that the cost rise “really is something that we don’t think we’ve seen before at this pace”, and added: “Unfortunately when you see costs like this change, ultimately that will feed through to customers.”

What other action can be taken?

There is pressure on the government to get CF to restart operations at its Cheshire plant, too. The British Retail Consortium’s director of food and sustainability, Andrew Opie, said it was “vital” work at the second site was “restarted as soon as possible, and distributed quickly to food manufacturers in need of it”.

The Tory former business minister Robert Halfon has also called for the government to consider scrapping or reducing the 5% VAT on energy bills.

Ministers are also considering state-backed loans to help the UK’s large energy suppliers pick up potentially millions of unprofitable energy customers ahead of a “tsunami” of supplier collapses this winter. Another option being discussed is a “bad bank”-style company to take on the customers left stranded by energy company failures to ensure they continue to receive energy at the price they agreed to pay.

Source: theguardian.com