WIP0009

 

Written evidence submitted by Net Zero Industry Wales

Summary

Net Zero Industry Wales’s (NZIW) reason for responding to this call for evidence, is that it strongly believes that there is a solid strategic plan (see chapter 4 of this paper) across industrial sectors, to halt the de-industrialisation of Wales, support the decarbonisation of the remaining industry in Wales, retain its role in providing a significant proportion of UK’s energy demand, as well as attract inwards investment and address the environmental legacy of Wales’s industrial past.

Welsh manufacturing & its power sector contribute up to 50% of the nation’s carbon footprint and up to 20% of the UK total emissions for these sectors. These sectors, generate £10.5 billion of GVA per year and employ just over 121,000 people in Wales. These jobs provide high value employment that tend to pay more than regional averages.

Since the closure of the coal mines, the manufacturing sector (including the foundation industries) have struggled to gain access to competitively priced energy. Gradually over the last three decades, have become globally uncompetitive, due to this and the related underinvestment in the plants & facilities.

Despite its relatively high emissions burden, historically Wales has received less than its population equivalent of the financial support, made available by the UK treasury, to support the transition to net zero. A significant proportion of the large industrial emitters are committed to the transition towards producing more sustainable goods & services in Wales, at a pace needed to meet the legally binding targets, therefore there is a strong supportive culture in the nation, btu this ambition isn’t matched by UK Government financial support. 

Wales has an abundant resources of industrial, grid-connected land, and a skilled workforce that can, with the right support, drive the huge potential identified in the strategic plan, to develop a renewed energy economy in Wales that powers the next industrial revolution.

There is a strong need to realise Wales’s potential to be at the heart of the next Industrial Revolution, within the wider UK Industrial strategy, enabled by the creation of an abundance of low carbon energy & associated infrastructure on its doorstep, powering the Foundation industries & Advance manufacturing facilities in the country.

As part of its role in the Uk Industrial Strategy it has the ability to grow the materials recovery industry, using Wales’s leading position of recycling of waste, combined with the deployment of Artificial Intelligence technology, to decrease the UK’s independence on imported raw materials, as well as monetise its environmental legacy.

Wales can become a leading clean energy transition hub, as well as remain a cornerstone of the UK industrial base, if the developed Cluster plans (SWIC & NEWID) are implemented with the urgency is deserves; using public & private sector partnerships (like NZIW), where appropriate, to increase the pace of delivery.

Contrary to popular belief, there is actually a bright future for industry in Wales, if only the opportunity is unlocked now and at pace.

1.      Introduction to Net Zero Industry Wales

Net Zero Industry Wales (NZIW) is a not-for-profit body which provides independent guidance and support to Welsh industries in their transition to delivering net zero.

Established in 2022, with support from Welsh Government & Welsh Industry, it aims to provide a neutral & trusted voice, whilst empowering industry to play an active role in the delivery of net zero through the uptake of low carbon technologies.

Net Zero Industry Wales seeks to fosters collaboration between the private & public sector and actively develops public-private sector partnerships to unlock significant investment, with the ultimate aim of making Wales the country of choice for producing sustainable goods and services.

Therefore NZIW would like to demonstrate through this submission, in response to the call for evidence that there is actually a bright future for industry in Wales, if only the opportunity is unlocked now and at pace.

 

2.      How has deindustrialisation shaped socio-economic conditions in Wales today?

Welsh manufacturing & power sectors contribute up to 50% of the nation’s carbon footprint[1] and up to 20% of the UK total emissions for these sectors. Per capita, the emissions level in Wales is up to 3 times higher than the UK average.

However historically Wales has received less than its population equivalent of the financial support, made available by the UK treasury to support the transition to net zero. The latter should be closer to its equivalent to its emission burden, to enable a just transition and halt the further de-industrialisation of Wales. 

What does access to the labour market look like in former industrial areas of Wales that were once centred around heavy industries?

A 2023 study published by the Aldersgate group[2] on the economic benefits of Industrial Decarbonisation, concluded that the UK Industrial sectors and wider supply chain, contribute £152 billion of GVA to the UK economy, of which £10.5 billion of GVA is generated in Wales.

These sectors employ over 1.4 million people in the UK of which 121,000 in Wales, providing high value employment that tend to pay more than regional averages. Many areas across Wales, e.g. Milford Haven & Port Talbot, rely strongly on industry to support jobs and economic activity and they have seen a significant decline in employment over the last decades.

In 2019 Welsh industry employed ~165,000 people and in 2001 this number was well over 200,000 people. Hence access to the labour market in these local areas has significantly reduced.   


How effective have UK Government policies and funding interventions been in responding to the consequences of deindustrialisation in Wales?

Since the closure of the coal mines, Welsh Industry have struggled to gain access to competitively priced energy in the region and increasingly have been dependent on the import of raw materials.

Over the last three decades, industry has gradually become globally uncompetitive, as energy costs are a large component of their operational cost base and margins have generally been small, even with competitive energy prices. This made the Welsh industry not only less resilient to global economic shocks, but also less likely to attract investment with their company group or let alone external investors, to improve productivity & efficiency. The lack of investment, together with the continued high energy costs, has further deteriorated global competitiveness. This uncompetitive position, has driven the deindustrialisation of Wales and the UK more widely.

The UK Government has celebrated in recent years the large reduction in territorial carbon emission reduction it achieved, compared to other countries. However, a significant proportion of the emissions reduction achieved since 1990 (54% since 1990) was achieved by de-industrialisation, as manufacturing & associated emissions were offshored over this period. This isn’t only globally irresponsible, but also makes the nation’s supply chain less resilient and removes well paid jobs from our economy, demonstrated by the 47% reduction in manufacturing jobs over the same period2.

However the consumption of goods and services that were previously supplied by the de-industrialised areas of the Wales & Uk more widely, are still being consumed in the UK, but imported from other parts of the world. Therefore effectively, possibly all, but certainly a significant proportion of these territorial emission reductions, where offshore and had no/or little effect in combating climate change.

UK government policies and funding interventions over the last decades, have been mainly encouraging the creation of jobs in the 3rd sector, effectively encouraged manufacturing of goods to be “offshored” to other parts of the globe and increased the UK’s dependency on imported goods.

This direction was favoured over retaining a certain level of sovereignty on energy production and the manufacturing of goods. One of the only exception to this, is the recent intervention in the Welsh Steel industry. However it still resulted in a significant amount of direct & indirect job losses, offshored emissions and generated a belief that the decarbonisation of industry, will lead to job losses.

As a result, the local communities that depend heavily on high value employment provided by industry, have mainly seen plants close & associated jobs being lost over the last decades, with little or nothing to replace it with. They have lost faith & belief that new industries (e.g. associated with the transition to net zero) will provide an opportunity for their families & future generations to continue to prosper & thrive within their local area.

Over the last decades they have been presented with numerous visions and plans. To recover the economic impact the de-industrialisation has had on their communities, but very little of these plans actually became a reality. It’s time to make some of these plans & “once in a lifetime opportunities”, e.g. the anchoring of the assembly of Floating Offshore Wind structures in Welsh ports, a reality.

 

3.      Is deindustrialisation an ongoing process, and how might it affect Wales’s role in the UK Government’s growth mission?

What part will heavy industry play in the future of the Welsh economy, and what support could the UK Government provide?

Welsh Coal drove the original industrial revolution and played a substantial role in shaping Wales’s proud industrial & cultural heritage. Currently there is still a critical mass of industry in Wales, which continues to provide high value employment opportunities, as well as has the capability to decarbonise their operations within Wales.

But contrary to recent events (i.e. the closure of the Port Talbot steelworks blast furnaces & associated plants), the historical trend of industrial decline and the wider belief that decarbonisation of industry leads to job losses, there is actually a bright future for industry in Wales.

A significant proportion of these large industrial emitters are Net Zero Industry Wales members and they are committed to transition towards producing more sustainable goods & services in Wales, as set out in the South Wales Industrial Cluster and North East Wales Industrial Decarbonistion (NEWID) cluster plans, at a pace needed to meet the legally binding targets. 

However, in a globally competitive environment, Welsh Industry needs the active support of UK, as well as Welsh Government, to create the supportive culture, policy & regulatory frameworks and attractive Infrastructure that creates a level playing field, encourages the significant investment needed to make the transition to Net Zero and prevents carbon leakage.

This investment will build on Wales's Industrial Heritage and power the next Industrial Revolution needed, to create a trusted, sustainable, prosperous & resilient industry that the citizens of Wales can continue to be proud off.

The SWIC and NEWID cluster plans are a result of this strong collaborative culture in Wales and have identified a need to invest in the region of £35-40 billion between now and 2040, to support the delivery of the legally binding carbon reduction targets, as well as prevent the offshoring of any further UK emissions.

This investment will produce the low carbon energy needed to reduce the country’s reliance on unabated fossil fuels, the associated infrastructure (CO2, hydrogen, electricity and port) to transport the energy and low carbon manufacturing processes needed to make Wales leading clean energy transition hub, as well as remain a cornerstone of the UK industrial base.

These industries will harness the “once in a lifetime opportunity” that the development of Floating Offshore Wind brings to the Celtic Sea (alongside the further growth in the renewables sector in Wales), as well as pioneers the shipping of CO2 to support the decarbonisation of one of the UK’s largest industrial clusters.

The resulting port, hydrogen and electricity infrastructure enables the deep decarbonisation of Welsh Industry, continues to make a significant contribution to maintaining the UK’s energy resilience and attract inward investment to “make Wakes the country of choice for producing sustainable goods & services”.

To unlock this investment in the next 5 years, the Welsh industrial cluster plans need to be an integral part the UK industrial strategy and the strategy needs to ensure that the distribution of UK treasury financial support to support the delivery of the transition to Net Zero (contracts for difference, CO2 & hydrogen business model support, relevant grand funding), is in proportion to Wales’s emissions burden, rather than continue to be significantly less that its population equivalent.

Previous economic studies have shown that UK treasury support for these projects in Wales might not always be the lowest cost, however they do provide good value for money. For example in December 2023, NZIW published a study, outlining the economic case for supporting Non-Pipeline-Transport of CO2.

This study showed that Uk Government support of such a project would unlock £18.9 billion of gross GVA benefits over 20 years to the South Wales region, with an estimated need to provide £2.4billion of public funding needed over the same period (CO2 business models support). This is just over 10% of the funding that UK treasury has made available for the deployment of CCS technology across the UK and in proportion to Wales’s emission burden.

There is also a need for the UK, as well as Welsh Government to deploy specific interventions, similar to the recent interventions it made in the UK Steel industry, to ensure that certain industries remain or become anchored in the UK (e.g. the manufacturing & assembly of the Floating Offshore Wind turbines & bases).

NZIW would advocate both Uk & Welsh Government to develop public-private sector partnerships to develop bespoke agreements with the large emitters and/or emerging sectors (e.g. onshore & offshore wind) in Wales, similar to what other European governments have done, for example in the Netherlands.

The Dutch Government realised that generic, one-size fits all approach or policy, generally doesn’t work, to get these strategic projects over the line, i.e. get to a stage that they receive financial investment decision from their company board.

In the case of large emitters, the agreements enabled the Dutch Government to work closely together with the large emitters and/or sectors, initiated by a “Inspanningsverplichting” (obligation to perform to the best of one's ability), to eventually develop a bespoke legally binding agreements that become part of their permits conditions.  These agreements recognise the complexity of the transition, how the transition might affect their global competitiveness within the wider EU policy environment, as well as reach a common understanding & agreement on the transition steps individuals plants & industry sectors, rather than apply a one-size fits all solution. 

How could Wales best manage transitions to digital and green economies without exacerbating socio-economic inequalities?

Wales has abundant resources of industrial, grid-connected land, and a skilled workforce that can, with the right support, drive the huge potential from the development of a new energy economy in Wales.

Wales could be at the heart of the next Industrial Revolution powered (in the long term) by an abundance of low carbon energy on its doorstep, making best use of the abundance of natural resources in Wales, i.e. wind, solar and tidal energy, supplemented by nuclear and abated fossil fuels (Carbon Capture & Storage enabled electricity & hydrogen generation).

This abundant source of low carbon energy on its doorstep, could not only power the manufacturing industries in the country, but also a nascent materials recovery industry that make best use of the recycled materials collected across the UK and reduced the need to import raw materials, as well as power the Artificial Intelligence (AI) infrastructure needed to boost productivity.

This AI infrastructure and the associated technology, have a significant potential to improve productivity and save operational costs in the Foundation Industries (steel, Nickel refining, cement, etc.). These industries are increasingly recruiting people with a diverse range of skills to meet this demand; bringing in those with expertise in data analytics, programming, problem solving and video game industry knowledge.

AI also has the potential to support the substitution of imported raw materials, with recycled raw materials in the foundation industry, to deal with varying degrees of contamination and/or input material quality without affecting the production output quality.

The nascent materials recovery industry, supported with AI is a significant economic growth opportunity in Wales and allow the UK to decrease its independence on imported raw materials; some of which are increasingly scarce.

It not only makes best use of Wales’s leading position in recycling rates of waste, but also allow it to potentially deal with its industrial legacy, i.e. mine waste and other industrial waste that has been landfilled across the nation, during the original industrial revolution .

This waste still contains precious metals and other materials that can be recovered. Instead of it being a liability to the UK & Welsh government, it can become an opportunity to decrease its dependence on the import of raw materials.

A good example of this is the plant that the Royal Mint in Llantrisant commissioned recently, which recycles electrical waste and recovers gold, silver and other precious metals. These recovered metals, are turned into jewellery.

An early SWIC study, titled “South Wales with both eyes open” and published in 2021, identified 16 different “waste” materials (ashes, slags, sludges & slurries, scrap, dusts & fumes and contaminated products) and that there are there are ‘significant’ tonnages of legacy materials that are certainly technically capable of being re used. However the economics may prove difficult.

Therefore growth area needs further innovation support, to “materialise” its potential and prevent recycled materials to leave the UK and return back as finished products. However with large companies like Tata Steel, pivoting there manufacturing processes to increasingly make use of recycled scrap, as well as other metal refining companies in the areas looking to do the same, it provides a strong platform for further investment in research & development in this growth area, as well as “monetise” some of Wales’s industrial environmental legacy.

4.      Strategic Plan: “Wales, a leading Clean Energy transition hub and a Cornerstone of the UK industrial base”

Over the last 6 months, NZIW have been working with industrial partners and trade bodies that are active in Wales to develop a strategic plan (see also table on next page). The South Wales Industrial Cluster (SWIC) and North East Wales Industrial Decarbonisation (NEWID) plans provided, alongside relevant trade bodies and individual companies that operate across Wales, input into this piece of work. The strategic plan revolves around three main strategic goals:

To support the delivery of these goals, 13 strategies have been identified, alongside 23 anchor projects that support the delivery of these strategies in the short – medium term (2025-2030).

The projects have a relatively high but varying level of maturity, can reach financial investment decision within the next three years and make a significant economic impact within the next 5-10 years, if not sooner.

The investment value of the anchor projects/programs exceed £15 billion and NZIW is currently in progress to fully assess the economic impact on Gross Value Added and jobs (due late February, early March).

To unlock this investment, three urgent interventions have been identified and these are:


 

1 February 2025

 

 

[1] Source: Climate Change Committee – Progress report Reducing emissions in Wales – 2020 emission level (industry & power sectors combined value) – published June 2023

[2] Source: Economic benefits of industrial decarbonisation - A WPI Economics Report for Aldersgate Group – published September 2023