Government pays CO2 producer CF to reopen plants; price rise warned

The government has on Tuesday struck a deal with US fertiliser company CF Industries to restart production of carbon dioxide (CO2) at two plants, offering tens of millions of pounds of state support to avert a food supply crunch.

The two plants - one in Billingham and another in Cheshire - were shut because they were unprofitable due to the spike in their biggest cost: gas prices. CF Fertilisers produces around 60 per cent of UK’s CO2, used primarily by the food sector.

“This agreement will ensure the many critical industries that rely on a stable supply of CO2 have the resources they require to avoid disruption,” Business Secretary Kwasi Kwarteng said.

Wholesale gas prices have soared this year as economies reopened from Covid-19 lockdowns and high demand for liquefied natural gas in Asia pushed down supplies to Europe, leading to a shortage of CO2 in the food industry.

Environment Secretary George Eustice on Wednesday warned the food industry that CO2 prices would rise sharply.

"We need the market to adjust, the food industry knows there's going to be a sharp rise in the cost of carbon dioxide," he told Sky News.

Eustice said the food industry would have to accept that the price of CO2 would rise sharply, to around £1,000 a tonne from £200 a tonne. "So a big, sharp rise," he said.

The exceptional short term arrangement with CF Fertilisers will allow the company to immediately restart operations and produce CO2, with the government covering the operating costs for three weeks.

The support for CF would cost "many millions, possibly the tens of millions but it's to underpin some of those fixed costs," Eustice told Sky. "These are two big expensive plants."

Some of Britain's meat and poultry processors would have run out of CO2 - also used to put the fizz in beer, cider and soft drinks - within days, forcing them to halt production.

"We know that if we did not act, then by this weekend or certainly by the early part of next week, some of the poultry processing plants would need to close," Eustice said.

"And then we would have animal welfare issues, because you'd have lots of chickens on farms that couldn't be slaughtered on time, and would have to be probably euthanized on farms, we'd have a similar situation with pigs, so there would have been a real animal welfare challenge here, and a big disruption to the food supply chain, so we felt we needed to act."

He said the impact on food prices would be negligible.