Written evidence submitted by The Mineral Products – (DUE0046)

Executive Summary

• Climate Change requires concerted collective action from Government, business and individuals. The mineral products industry recognises the scale of the challenge and has taken considerable early action to address its emissions.
• As part of its commitment to decarbonisation, MPA Cement and BEIS worked jointly on a roadmap for decarbonising UK cement production. The conclusions on the technologies needed to decarbonise the industry are replicated in EU and global level roadmaps from the industry.
• The mineral products industry is a solution provider for a ‘net zero’ economy with low carbon locally produced products that will be needed to decarbonise buildings, homes, transport and society. Mineral products can be used to reduce prudential risk from climate change. Concrete can be used to withstand flooding as well as lasting longer than lightweight materials. Concrete’s high ‘thermal mass’ properties can protect occupants from overheating and remove the need for energy intensive air conditioning.
• The UK Government strategy so far has been to de-risk investment in decarbonisation for power generators with the cost burden falling heavily on Energy Intensive industries (EIIs) because of their high power demand. HMT needs to rebalance support from the power generation sector to the internationally tradable EIIs.
• In order for decarbonisation to be achieved without economic damage, the UK must make UK manufacturing competitive with other countries, which means tackling and preventing carbon leakage.
• ‘Net zero’ has now been legislated based on the narrow scope of territorial emissions. This means that the carbon budgets can, at least partially, be met through de-industrialisation. An evolution to consumption-based emissions reporting would show the UK’s true carbon footprint.
• High energy costs and unilateral policies such as the Carbon Price Support (CPS), which increase the cost of electricity in the UK compared to other countries, make inward investment less attractive.
• HMT must look across the economy at the sectors that are hardest to decarbonise, such as cement and lime manufacture which produce non-combustion related process emissions[a] and target support measures toward these sectors. One of the most important tasks for the green finance sector is to de-risk green investment in hard-to-decarbonise sectors.
• A regionally balanced transition must be achieved. Regional or local decarbonisation plans and the focus on certain industrial clusters have the potential to fragment action, create stranded sites, areas and regions. Government needs a strategy for decarbonisation of dispersed sites

About us

1. The Mineral Products Association (MPA) is the trade association for the aggregates, asphalt, cement, concrete, dimension stone, lime, mortar and silica sand industries. With the affiliation of British Precast, the British Association of Reinforcement (BAR), Eurobitume, MPA Northern Ireland, MPA Scotland and the British Calcium Carbonate Federation, it has a growing membership of 530 companies and is the sectoral voice for mineral products. MPA membership is made up of the vast majority of independent SME quarrying companies throughout the UK, as well as the 9 major international and global companies. It covers 100% of UK cement production, 90% of GB aggregates production, 95% of asphalt and over 70% of ready-mixed concrete and precast concrete production.
2. The industry generates £6.8 billion GVA. It is the largest supplier to the construction industry, which had annual output valued at £152 billion[b]. Industry production represents the largest materials flow in the UK economy and is also one of the largest manufacturing sectors.

Mineral products and Climate change

3. Mineral products play an important role in the mitigation of carbon emissions during the construction, use and end of life phases of buildings and infrastructure. They have a vital role in adaptation and reducing the risk arising from climate change. For example, concrete can be used to build flood defences that protect our homes and communities, and is essential to low carbon power generation and other strategic infrastructure needs.
4. For housing, concrete has a number of really beneficial properties from a climate change perspective. It can be used to build homes that can withstand flooding as well as lasting longer than lightweight materials. Concrete’s high thermal mass properties are particularly important. It can protect occupants from overheating, avoiding the use of energy intensive air conditioning. This same thermal mass reduces the energy required to heat the building. Less energy required for heating and cooling our homes improves energy efficiency and reduces emissions.
5. Concrete’s durability and flexibility allows for a ‘long life, loose fit’ design philosophy that allows buildings to be re-purposed for multiple uses rather than demolished. In a building life cycle the concrete ‘recarbonates’ i.e. it absorbs some of the carbon dioxide emitted during its production and stores it permanently. Recarbonation of concrete is accelerated when the building is demolished, and the concrete is recycled and reused.

The economic opportunity

Question 1. What economic costs and benefits does decarbonisation present for the UK?

6. Climate Change requires concerted collective action from Government, business and individuals. The mineral products industry recognises the scale of the challenge and has taken considerable early action to address its emissions. The UK cement industry has reduced its emissions by 51% since 1990 and is thus ahead of the UK as a whole on the decarbonisation journey.
7. Economic projections have shown that decarbonisation costs less than the consequences of climate change but these rely heavily on extremely long time scales and averaged data across the economy to do so. It is vital to take into account the impacts locally, for specific sectors and over a meaningful timescale.
8. If the UK were to press forward alone without taking measures to avoid carbon leakage, the result would be severe on some sectors. The security of supply of some products could be undermined.
9. The distribution of costs and benefits are not even across the economy. The Committee on Climate Change have estimated that the cost of the UK’s ‘Net Zero’ carbon budget is 1-2 per cent of GDP. Roughly 80 per cent of the economy is services so it is reasonable to assume that the cost of decarbonising will largely fall on the remaining 20 per cent, in particular the EIIs that already face high energy bills in addition to their direct emissions costs. Within the UK minerals sector cement and lime production are considered the most energy intensive but the moderately energy intensive processes within the sector are seeing energy and carbon policy costs become more significant.
10. Macro assessments of decarbonisation often mask the sectoral impacts. The UK’s territorially focused carbon budgets show carbon leakage as an environmental positive. For example, UK cement imports have grown from 10% to 23% in a decade[c] which reduces UK territorial emissions without reducing emissions on a global or consumption basis. It is clear that carbon leakage is a real risk to the economy and the environment.
11. The industry decarbonisation roadmaps have illustrated that the ‘low hanging fruit’ has already been addressed. For both cement and lime production Carbon Capture Utilisation/Storage (CCUS) will be needed in addition to product development (for cement) and fuel switching to low carbon alternatives.  As an indication a CCUS cement plant is likely to be double the Capex and double the Opex of a current best available techniques plant today. As such the cost of decarbonisation is prohibitive without supportive policy and financial mechanisms needed to make the investment in decarbonisation in the UK an attractive proposition for international businesses.
12. In addition to the impact on sectors themselves, there are some communities that will also strongly feel this effect. The impact of carbon leakage linked to deindustrialisation affects communities where imported goods displace locally produced goods and the local supply chains that they support. Energy intensive mineral-based product operations are often one of the largest employers in the areas where they operate.
13. When assessing the costs and benefits of decarbonisation, HMT should consider the retention of existing jobs in its considerations and not just the hopeful creation of new ‘green’ jobs. Moreover, should policy tackle leakage effectively, by repatriating some of the production already lost, UK the economy could get a boost and the UK could simultaneously take responsibility for tackling the emissions associated with the goods that it consumes; a double benefit.
14. The short-medium term costs of decarbonisation are considerable. For direct emissions, technology costs are prohibitively expensive, in particular for the energy intensive cement and lime operators. The indirect costs[d] that all MPA members will face will also be considerable. The UK already has some of the highest electricity prices in Europe and plans for the increased demand and the need for additional flexible electricity infrastructure and systems will add further considerable cost. The transition to low carbon heating regime is likely to bring further costs to industries reliant on existing gas infrastructure e.g. lime and asphalt production. Energy intensive mineral products that are internationally traded (e.g. cement and lime) will need to be shielded from the costs not faced by their competitors that operate in countries without the same level of ambition, demanding targets, policies that produce high carbon prices or where those costs are socialised i.e. spread more thinly through society in bills.
15. In order for decarbonisation to be achieved, the UK must make manufacturing here competitive with other countries. Extremely high energy costs and unilateral policies such as the Carbon Price Support (CPS), which increases the cost of electricity in the UK compared to other countries, do not make the UK appear a particularly welcoming place for industry[e].

Question 2. What benefits can a growth of the Green Finance sector deliver for the UK, and does the UK hold a competitive advantage in this space?

16. Green finance can be a broad sector including commercial, domestic loans/mortgages, pension funds and bonds. One of the most important tasks for the green finance sector is to de-risk green investment in hard-to-decarbonise sectors. The various policy instruments that have supported the decarbonisation of the power sector did this effectively. Similar support for investing in decarbonising industry – for example in CCUS for ‘process’ emissions[f] – would underpin the transition to zero carbon industry effectively.
17. Green Finance needs projects and products in which to invest. Energy-intensive industries could provide ample scope for investment by providing longevity in investment cycles.
18. The UK financial sector is well placed to provide financial products to decarbonise the economy. There is an associated risk, however, that the impact of decarbonisation policy would be less visible in the UK than in other countries because it falls on a relatively small sector of the economy.
19. To date, green finance in the UK has not really been competitive with other forms of finance. More support that de-risks investment for industry is required from Government if the UK is to take a lead in decarbonisation whilst keeping industry competitive in the UK. Green finance alone will not be enough.

Question 3. How might HMT deliver a regionally balanced and ‘just’ transition across the UK?

20. A regionally balanced just transition should be central to HMT’s industrial and decarbonisation strategies.
21. Mineral product extraction and production activity is spread right across the UK. These are high productivity jobs, producing £92,311 per worker in 2016.[g] MPA members make significant contributions to their local economies through local supply chains and direct employment. A regionally balanced transition must include setting conditions that allow our members to thrive as they decarbonise. HMT’s policy needs to make the UK a more attractive place to invest for EIIs, potentially benefitting the economies of lagging regions of the UK.
22. Good policy making should attract inward investment from the multinational companies that own some of the largest UK mineral companies. Companies have invested in carbon and energy efficiency but the scale of investment in new cement plants is large even before adding new decarbonisation technology. Without tackling carbon leakage it is unlikely the UK would be an attractive place to invest compared to other countries with less ambitious targets and policies, and consequently lower carbon prices.
23. A regionally balanced transition is not helped by regional or local decarbonisation plans which fragment action to a sub-national level. Consolidation in the energy intensive aspects of mineral production mean that a few large sites supply cement and lime for the UK economy. Fragmented decarbonisation targets show an imbalanced picture as we have seen in the Scotland and Wales decarbonisation plans.
24. This fragmentation is also evident in the manner in which Government is addressing breakthrough technologies. A focus on certain industrial clusters in the transition to net zero, particularly for technologies such as CCUS, has the potential to create stranded sites, areas and regions outside of the clusters. Government strategy must include decarbonisation of geographically dispersed industries.

HMT’s strategy:

Question 4. What is HMT’s current strategy, and approach to, UK decarbonisation, and is it fit for purpose?

25. HMT’s current strategy is no longer fit for purpose with a net zero target.
26. UK Government strategy so far has been to de-risk investment in decarbonisation for power generators. This has been expensive and the cost has been passed through to consumers, with a particularly heavy burden placed on EIIs because of their high energy demand.
27. For some of the costs there has been a welcome ‘EII package’ of exemptions and reliefs but the impact of these is partial and patchy across and within sectors. Uncertainty remains on the future of these reliefs, especially in Northern Ireland. Energy intensive cement and lime production does not attract relief from the indirect climate change costs (CPS and EU ETS) in electricity unlike other sectors. The UK cement industry would pass the EU State Aid test if the test were carried out with UK data but the use of EU data in the past has prevented UK access to indirect costs compensation, which reduces its competitiveness. There is no visibility on whether similar reliefs might be applied when decarbonising the heat network.

Question 5. How does HMT work with the Clean Growth Strategy and government departments to support decarbonisation? Is this working well?

28. Following the publication of an MPA Cement decarbonisation roadmap in 2013 BEIS worked with the cement industry to validate the conclusions in its own decarbonisation roadmap for cement. On the back of the roadmap recommendations there has been the introduction of funding programmes for fuel switching, waste heat recovery, hydrogen supply, CCU and the announcement in the last budget of the £315m Industrial Energy Transformation Fund. Whilst these programmes are helpful and will contribute to decarbonisation they are not the game changers needed for net zero. Breakthrough technologies such as CCUS require a major advancement in financing to address the prohibitive Capex and Opex costs. Long term certainty of the support arrangement will be key in providing confidence in the industry investments.
29. The UK lime sector has engaged actively in the government’s programmes examining hydrogen as a replacement for gas heating, but the future of heat, and how a just transition to low carbon industrial heat might be achieved, is still unclear.
30. The annual revenue from EU ETS, CCL and CPS provide enough capital to support EIIs to maintain competitiveness during the net zero transition. Although a significant investment in technology development, the money that is provided in BEIS support programme is insignificant when compared to the scale of the challenge. HMT should rebalance support from the power generation sector to EIIs producing internationally tradeable products.

Question 6. How should HMT’s approach evolve to ensure the Government meets the legally binding carbon budgets (and the net-zero targets, if applicable)

31. To meet the carbon budgets and the net zero target, HMT needs to strike the right balance between the economy, the environment, societal value and technological capability. The UK’s territorial emissions are shrinking, and according to the Committee on Climate Change[h] the UK’s consumption emissions are also shrinking. Critically the gap between the territorial and consumption emissions is steadily growing, suggesting that current policy is deficient and encourages offshoring of emissions overseas.
32. Net zero has now been legislated for based on the narrow scope of territorial emissions. This narrow scope removes the need for the UK to take any responsibility for the emissions associated with the goods and services it imports. Left unaddressed this will have unintended consequences for the environment, society and the economy. It means that the carbon budgets can, at least partially, be met through de-industrialisation. Coupled with extremely high energy costs and unilateral policies such as the CPS, which increases the cost of electricity in the UK compared to other countries, this does not make the UK appear a particularly welcoming place for industry. Tackling this would make investing in UK EIIs much more attractive.
33. An evolution to consumption-based emissions reporting would show the UK’s true carbon footprint and enable the UK to take responsibility for emissions associated with the carbon the economy consumes rather than what it produces. Only an honest consumption based GHG account will demonstrate leadership on climate change and ensure a just transition to net zero.
34. In addition to an evolution of carbon budget accounting, HMT’s support strategy also needs to evolve. The prohibitive costs of technologies such as CCUS or zero carbon fuels need both policy and financial support. This support package will need to make investment in UK plants to install and develop these technologies an attractive option with payback periods that meet the expectations of decision makers and shareholders in international organisations.

Question 7. What role should the 2019 Comprehensive Spending Review play in UK decarbonisation? What projects or measures should receive additional funds through this process?

35. The Government spending review cycle is not the right tool to provide certainty and continuity for an issue which, to match the investment cycles of large industrial plant, requires 30-40 years visibility. There is only one major investment point between now and 2050 for any given plant so there is only one opportunity to get it right.
36. At present, MPA members’ experience is that HMT and Government’s delivery of projects is not reliable. The experience of the infrastructure projects pipeline is one of delay, which has real-world costs for our members who invest in people, plant and sites to supply materials. For example, the Road Investment Strategy has proved impossible to deliver to the initial plan and timing. It is not clear how industry can have confidence in decarbonisation, a much more complex, ambitious and long-term project.
37. HMT must look across the economy at the sectors that are hardest to decarbonise. Non-combustion related process emissions in industries like cement and lime manufacture are one such area. A step change reduction in these emissions will only be possible with CCUS technology. However, the high concentrations of carbon dioxide from these processes mean that deployment of CCUS would likely result in greater value for money than in other sectors. HMT should seek to target support for industries with high ‘process’ emissions.

Green Finance:

Question 8. What role do UK financial services firms currently play in the decarbonisation of the economy, (for example, through stewardship, capital allocation to green projects, green financial products)? What more can they do?

38. Evidence of a positive impact of UK green finance on the UK minerals sector is lacking. The Green Investment Bank has had no impact on the decarbonisation profile of our industry to date. However, more could be done for the hard to decarbonise activities, products and processes by driving decarbonisation without adding to the cost of UK production or limiting return on capital employed to such an extent as to make investments less viable. Such additional costs cannot be borne by sectors with a high risk of carbon leakage.

Question 9. What steps have UK banks, asset managers, and pension funds taken to ‘green’ their business models, investments strategies and balance sheets, taking into account climate and transition risks?

39. No comment

Question 10. Are there any barriers (regulatory or otherwise) preventing financial services firms from delivering green finance or investing in ‘green’ assets?

40. The European Commission has set up a Technical Expert Group (TEG) on sustainable finance to assist it in developing the so-called EU sustainable finance taxonomy. This taxonomy seeks to determine whether an economic activity is environmentally sustainable or not. The work is not complete but MPA’s experience of the cement related benchmark development suggests that the TEG proposals will be wholly unacceptable and inappropriate for the UK cement market.
41. There is a difference between ‘green finance’ and ‘finance for greening’. HMT should encourage finance that assists with the greening of the economy but not agree to thresholds which prevent hard-to-decarbonise activities receiving green finance. Measures which restrict the amount, type or quality of finance in the hard-to-abate sectors will restrict and inhibit the greening of the economy. The EU taxonomy initiative is setting aspirational thresholds to be met in future decades which serves little purpose for the technical and economic challenges faced today.
42. There are several areas where uncertainty is a potential barrier. Experience to date has shown that policy maker interference in climate change legislation and renewables policy can have very disruptive effects for companies and investors. The EU ETS rules and regulations have been changed at a much greater frequency than the invest cycles of the major decarbonisation technologies, such a disjointed policy backdrop will no doubt impede investment in the technologies which present higher business risks.  Similarly, the future of EU ETS and the UK – whether a linked or standalone scheme, for example – needs to be resolved.

Question 11. What prudential risks does climate change pose?

43. No comment

Question 12. What is the Financial Conduct Authority and the Prudential Regulation Authority doing to support decarbonisation and a ‘greening’ of the financial system?

44. No comment

Question 12(b) What expectations do (and should) they place on regulated firms about their role in the transition through their policy and supervisory activities?

45. No comment

Question 13. What is the consumer demand for ‘green’ financial products?

46. There is scope for building loans and mortgages to be ‘greened’. However, any preferential rates on building loans must be related to the environmental performance of the building over its whole service life and not its material embodied components.
47. Concrete purchased with green financial products produces long lasting buildings with low maintenance cycles which means less resource consumed through the building life, while its high thermal mass requires less heating and cooling and lower risks of overheating.

Question 14. Are there a range of accessible options available to consumers seeking to source ‘green’ financial products across the product suite (for example, mortgages, bonds, investment products, savings accounts, loans)? Do certain instruments dominate the green finance landscape, and if so, why?

48. No comment

Question 15. Do accompanying documents for ‘green’ instruments (bonds, funds, etc) articulate why and how the composite holdings within that instrument are ‘green’? Are obligations placed upon listed companies, to report their carbon emissions, to inform fund composition?

49. No comment

Question 16. Does the current advice and KYC process effectively facilitate a consideration of sustainability preferences?

50. No comment

26/07/2019