Written submission from the UKRI National Interdisciplinary Centre for Circular Chemical Economy (CircularChem Centre) (IND0004)

Submission Details

Author: Dr Tom Franklin

Organisation: UKRI CircularChem Centre.

Introduction

This evidence is submitted on behalf of the UKRI National Interdisciplinary Centre for Circular Chemical Economy (CircularChem Centre), which brings together stakeholders from academia, industry, government, NGOs and the general public. As part of a £30 million strategic government investment, it plays a key role in helping the UK to reduce waste, minimise the environmental impacts of production and consumption and create opportunities for new UK industries.

Our vision is to transform the UK’s chemical industry from linear supply chains into a fossil-independent, climate-positive and environmentally friendly circular economy. We welcome the development of a new Industrial Strategy, but consider amendments are needed to truly capture the opportunity for global and domestic investment.

Maximising Economic Growth, Productivity and Jobs

To truly maximise growth, productivity and jobs, the Government must focus its strategy on industries and sectors with the greatest positive economic, environmental and social impact. A list of high-growth sectors was identified in the Green Paper, but it was not complete - alarmingly, the chemical sector was omitted. Advanced manufacturing, clean energy and life sciences (sectors identified in the strategy) all depend upon and feed into the chemical sector, creating a complex interdependent network of supply chains. 96% of all goods in the UK contain chemicals or derivatives from this sector (Innovate UK, ‘UK Chem 2050: Sustainable Carbon Ambition for the Chemical Industry’). By focussing on the markets created by ethylene and associated feedstocks and products, 70% of the organic (i.e. carbon-based) chemical sector can be accounted for. Ethylene is the most important commodity chemical globally, contributing to sectors such as plastics, agriculture, clothing, personal care and transport.

Economically, the chemical and pharmaceutical industry (chemical industry) generates a significant contribution to the UK, as recent figures obtained by the Chemical Industries Association highlight: £75 billion annual turnover; £61 billion of (mainly EU) exports; the second largest industry in the UK; £30.4 billion of value added to the UK economy; £200,000 gross value added (GVA) per employee. The chemical industry supports 4,100 businesses, provides direct employment to over 130,000 people and indirect employment to a further 500,000 people, in regions such as the North East of England which has faced historical inequalities. Over a third of direct employees are in R&D with salaries nearly 27% higher than the average across the economy. The annual investment in R&D accounts for over 19% of the total business investment in the UK, and additional business investments, including machinery and infrastructure, represents an additional 19% of private sector manufacturing investments. Demand for the sector is predicted to at least double over the next 10 years. It is evident that any comprehensive, ambitious and future-focussed strategy must include the chemical sector.

The UK has a long history of expertise and capability in R&D within the science and innovation spheres which continues to this today, particularly within the pharmaceutical, fine chemicals and personal care industries – why are successive Governments and Industrial Strategies continuing to omit this sector from consideration? For now, the UK remains a global leader in the generation of intellectual property and novel technologies.

Foundational sectors and related value chains underpin much of the economy and are a catalyst for producing emerging technologies. The chemical sector could be regarded as the foundational sector from which many others depend.

Achieving Carbon Reduction Targets

An Industrial Strategy that is rooted in principles of a circular economy (CE) and the waste hierarchy will have the greatest impact in delivering the Government’s carbon reduction targets as set out at COP29, de-risk the economy from geo-political threats and close regional gaps in growth.

Any economy that is built upon the linear consumption of resources (i.e. extract, make, use, dispose) will never achieve these goals – our current dependence on fossil fuels for both fuel and chemicals is an entirely linear economy. We need alternative, non-fossil sources of carbon to ensure that our industries can continue to produce the products and services that have built our society and have a positive impact. Even if we adopt 100% ‘green’ carbon sources, we will repeat the mistakes of the past if those carbon economies are not circular. A CE reduces resource consumption, energy demand and waste generation – targets that we should strive for but will not be possible with current business-as-usual practices. Furthermore, a CE offers greater supply chain security (by largely internalising material, resource and waste flows) and can, therefore, minimise the risk from geo-political events.

Consistent policy interventions and government backing is needed to minimise the risks associated with the investments required to transition technologies, business models, value chains and the workforce to a circular economy. This will require a whole systems perspective, challenging every sector of the economy to become more circular. Any Industrial Strategy that is not rooted in circular economy principles is destined to fail. Changing UK and international market trends could incentivise the phase out of fossil feedstocks and linear business models, but this can be accelerated with the right Government support and interventions. A specific strategy for chemicals, not just fuels and energy, is urgently needed, showcasing connected thinking from strategy to technology to accelerate progress in all areas.

Focussing on Grand Challenges

Grand challenges should be the chosen approach, to foster close collaboration between and within sectors and enable sharing of solutions to similar problems. There is a risk that treating sectors in isolation could lead to siloing and a lack of coherent communication between Government departments and industries – solutions from one sector could be translated into other areas to foster rapid innovation. In tackling whole challenges, multiple sectors will be included simultaneously. Furthermore, it may be easier to adapt to wider market changes and global events with closer inter-sector relationships. Many of the challenges facing society are grand challenges by their very nature, requiring complex, multi-sector solutions – decarbonisation, climate change resilience and economic inequalities. It would be unwise to try and tackle each problem independently within each sector.

The current strategy targets some of the growth-driving sectors, but it does not adequately encompass them all. To reiterate, the lack of the chemical sector is a glaring omission – a sector which underpins most of those identified in the Green Paper. Therefore, by adopting the defossilisation of the chemical sector as a grand challenge (i.e. looking for alternative, non-fossil sources of carbon), issues facing other sectors that rely on chemicals will be included and potential solutions identified.

To expand, a simplified linear route from a fossil feedstock (crude oil) to consumer product (shampoo) is given in Figure 1, highlighting the multiple uses of ethylene. Not shown are the carbon emissions associated with each step of the process or the extraction and transport of the crude oil feedstock. Therefore, it is clear from this example that several challenges could be tackled simultaneously – reliance on fossil feedstocks/fuels, carbon emissions reduction and plastic waste management.

A diagram of chemical reaction

AI-generated content may be incorrect.
Figure 1: A simplified example linear route from a fossil feedstock (crude oil) to a consumer product (shampoo), highlighting the multiple uses of ethylene. Figure obtained from Carbon & Cash: Financing a Circular Chemical Economy.

Further examples of the inter-connected nature of chemical supply chains are provided in the excellent work of Levi and Cullen in mapping global flows of chemicals: Environ. Sci. Technol. 2018, 52, 4, 1725-1734.

Horizontal Policy

A focused and proactive policy/programme of education, retraining and upskilling in emerging green sector jobs will help to future-proof the skills-base and knowledge of UK industry. Ensuring adequate training and education in sustainability will further help to strengthen and safeguard UK industry for the future. Communication and access to resources must address specific barriers faced by workers of different backgrounds.

Public Investment and Policy Instruments

Industries with significant CAPEX and OPEX costs will, by necessity, have a different approach to investment decisions. Construction of new industrial facilities is expensive and a further hurdle for small and emerging firms looking to enter the market – there is an opportunity here for targeted public investment. As these facilities approach the end of their working lifetime, their continued viability must be considered before deciding to invest further capital. Coupled with extremely high energy costs, an increasing number of decisions are being made to close facilities in favour of offshoring manufacturing to overseas nations with significantly lower labour and energy costs and more flexible regulatory environments. The Industrial Strategy must include provision to address this outflow of innovation and technology.

Tax relief incentives have been an important policy instrument for the continued operation of the oil and gas industry. The sector currently employs over 200,000 people and these subsidies have been a part of ensuring continued job retention and economic growth. Opponents of phasing out oil and gas extraction often cite job losses as a reason not to do so. However, a phased reallocation of such incentives (i.e. annually decreasing with the deducted portion redirected towards green sector jobs, training, feedstocks and technologies) will help to address this concern by ensuring minimal job losses through re-skilling and re-training. Many current oil and gas sector employees possess the necessary skills and expertise to transition to green sector jobs with the correct retraining and education.

Until fossil resources are no longer subsidised, carbon feedstocks obtained from alternative, sustainable sources will not be commercially viable. Unless significant government support is provided in the right areas, we will not achieve our Net Zero goals within the specified timeframes. Fundamentally, this issue depends on whether companies can afford to switch to alternative fuels and carbon feedstocks and remain competitive in global markets.

Devolution of Economic Power

Much has been spoken of about levelling up the North, yet little action appears to be evident. The cancellation of the northern leg of HS2 is a prime example. To truly unlock the full potential of cities and growth regions, a more connected workforce with ease of mobility between regions will be important.

Half of the Russell Group universities are outside London and the South East, each of which produces a steady stream of highly educated, enthusiastic and ambitious graduates ready to enter the workforce. Neglecting investment in the cities and wider regions where these universities exist risks draining these regions of talent and skills.

Furthermore, many chemical and engineering industrial clusters operate within the North, several of which were identified in the Green Paper. Some of these are legacy sites from ICI (e.g. the Wilton Centre in Redcar) and similarly impactful companies which showcases our heritage in science and technology and represent particular strengths of UK industry as a whole. They should be prioritised for investment to ensure longevity and continued infrastructure improvements and the retention of an existing skilled workforce.

Effective Oversight by the Industrial Strategy Council

Current regulation and policies are quick to adopt punitive measures but slow to reward – there is too much ‘stick’ and not enough ‘carrot’. Any policy incentives to encourage movement away from ‘bad’ behaviour, or associated penalties, must be of sufficient scale to actively drive a transition to more sustainable and innovative ways of working.

The council should identify emerging sectors for investment through frequent and timely sector and subsector reviews, in consultation with academia and industry – those most likely to produce and/or adopt such technologies. Public consultations could also offer insight.

Parliamentary Scrutiny

‘Growth’ alone is a poor metric – it is vague and not compatible with a sustainable society. Adopting metrics that focus on social impact and activities related to sustainability and Net Zero would be more appropriate if we are to define a new age of industry. Any system where ‘success’ is measured by endless growth and resource consumption is unsustainable.

Frequent engagement with key stakeholders to ensure quick reactions to fluctuating global market forces should be encouraged and could also be used to hold all relevant parties to account by monitoring appropriate, quantifiable targets.

The Industrial Strategy Council and Parliament should give sufficient focus to under-performing areas as well as successful sectors. Whilst support is needed to ensure continued success of high-performing sectors, there is a risk that poorer performing sectors will be left further behind by focussing solely on those performing well. A balanced approach is needed and is the most suitable option. Methods by which high-performing sectors could support low-performing sectors should be explored to increase resilience and co-operation.

Further Information

The following documents provide further information on the vital importance of the chemical sector for the UK and policy options for consideration: