Steel and chemicals industries will be amongst the big users of energy that will benefit from being exempt from paying environmental tariffs.
The announcement was made in Chancellor George Osborne's Spending Review and Autumn Statement and is seen as his response to demands for help for the beleaguered steel industry in the UK.
The problems that have beset the UK steel industry leading to the closure of plants and loss of thousands of jobs has in part been blamed on so called "green" levies that have kept energy bills high.
Both unions and industry leaders highlighted the problem, and whilst industry figures have praised the new move, union leaders said that it would do nothing to improve the long-term future.
Head of Community, the steelworkers' union, Roy Rickhuss said: "Yet again the chancellor has failed to fully understand the crisis facing the steel industry."
He added that "short-term measures around business rates and environmental and energy costs" might encourage steel producers "to hold their nerve and preserve skills," but said that there were no reassurances about the long-term future of the industry.
Gareth Stace, director of UK Steel, said the change "was enormously welcome and demonstrates that the government is dedicated to finding a long term solution to this problem."
"With a move to an exemption rather than compensation, government has ended this uncertainty and we can now look forward to a more level playing field in terms of energy prices for our steel plants," he said.
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