The publication of the Government’s Energy White Paper is yet another important step paving the way to decarbonising our economy. The chemicals sector is uniquely placed to ensure UK-wide delivery of net zero by 2050. Our own emissions performance has seen an 80% reduction since 1990 and we are ‘the builder’ of net zero with our solutions used in homes, at work and throughout everyday life, saving at least 2 tonnes of greenhouse gases for every 1 tonne we directly emit.
CIA welcomes the Governments Energy White Paper including many of the commitments that would support successful delivery of a net zero economy. Central to achieving this will require a cross government approach, in partnership with industry, to ensure jobs and investment in the UK are strengthened whilst the country achieves its new environmental and economic future. Our recently published paper on net zero provides further details on the role of our industry as well as the challenges that need consideration in future policy making.
Looking ahead the sector is an enabler of priority areas identified in the White Paper to decrease the cost of decarbonisation. This includes:
- Sustainable aviation fuels for the recently established JetZero Council and part of the country’s 10-point green recovery plan
- Synthetic fuels made from captured CO2 for cars, or from waste to feed into the gas grid.
- Providers of hydrogen to transition homes, heavy goods vehicles, planes, and trains to net zero.
- Providers of hydrogen and ammonia to decarbonise marine transport.
- Strong,lightweight materials for vehicles or wind turbine blades.
- Batteries for electric vehicles, including their recycling at end-of-life
- Insulation to keep homes warm whilst saving energy.
With the paper setting out a number of announcements and with further details to be revealed over coming months, 2021 will be absolutely fundamental in ensuring future policies can help sectors such as ours to further decarbonise and in turn deliver technologies and solutions to support many of the priority areas identified in the paper. In doing so we are pleased to see confirmed:
- An Industrial Decarbonisation Strategy setting out the details of how government will support the decarbonisation of manufacturing industry. Chemicals are the building block to everyday life, fundamental to basic needs such as clean water, sufficient food and effective medicine to low carbon goods and increasingly sophisticated technologies such as electric vehicles and clean energy sources. All manufacturing industries consume some form of chemical or pharmaceutical and when looking at the economy as a whole 95% of industries consume from the chemical or pharmaceutical sector. Therefore, this strategy plays a pivotal role enhance long term competitiveness, support a green recovery, and insulate businesses to outcompete more carbon intensive products in the global market. Such a strategy must be resilient to change, provide long-term policy support, such as moving away from fragmented funding scope, application windows and eligibility, as well as accountability for future policy actions.
- A dedicated Hydrogen Strategy positioning the UK as a world leader in the production and use of clean hydrogen. In addition, further details of a revenue mechanism to bring through private sector investment into industrial carbon capture and hydrogen projects via new business models is welcome. In this context the strategy must be accompanied by effective business models that provide a reasonable payback and provide mitigation against the cost of carbon pricing. Significant and long-term grants or tax incentives are also needed to encourage companies to invest in the UK with support to test, upscale, and manufacture so that the UK reaps the reward of the economic and societal return. Finally, strategic planning will be needed on infrastructure, e.g., the storage and transport of hydrogen through interconnectors, ports, transmission, and distribution networks, safely and efficiently.
- On incentives and funding the industry supports many of the measures committed to including the creation of a Net Zero Hydrogen Fund, providing £240 million of capital co-investment out to 2024/25, £1 billion investment to facilitate deployment of CCUS. The aim to have 5GW of clean hydrogen production by 2030 is welcome. Hydrogen can be used as both a heat source and a raw material for chemicals, so access to a reliable and competitively priced supply will be critical to our sector’s complete decarbonisation. However, we note that Germany has the same target and is backing their ambition with €7bn, compared with the UK’s proposed £500m. We would urge the government to stay engaged with UK industry, to ensure our hydrogen ambitions are not stymied through barriers to investment. The paper also commits to increasing the Industrial Clusters Mission to support the delivery of four low carbon clusters by 2030 and at least one fully net zero cluster by 2040. This is a welcome change in pace and will help more of our cluster-based sites to act on the long-term decarbonisation plans they have been developing. Our major clusters (including the Northwest, Humber Bank, Teesside, South Wales and Scotland) already have plans setting out decarbonisation projects of multiple facilities using shared infrastructure with other key industrial sectors. If all these projects are deployed, a further 100 million tonnes of CO2 could be abated, making a major contribution to net zero.
- On the commitment to implement the world’s first net zero carbon cap and trade market, the UK Emissions Trading Scheme we welcome the clarity this provides on carbon pricing in 2021. However, noting that the scheme may be linked to another market in the future, we would urge the government to act early to provide business with certainty on long-term market rules in the event of any future linking arrangement. We also note that the government has committed to exploring expanding the UK ETS to the two thirds of uncovered emissions in the economy. Whereas other parts of the economy may well benefit from a carbon pricing, the UK ETS is tailored to towards industry and may not be the best instrument for applying an economy-wide carbon price. The government should fully consult on any proposals of this nature.
The chemical industry can help deliver a thriving green UK economy, but it is no different to other users of energy – from household to transport – all needing reliable and affordable clean heat and power to decarbonise. In competing globally for market share and inward investment, the sector cannot readily pass costs to its customers. Given the improvements the sector has already made in the energy efficiency of its existing production assets, our contribution is now critically dependent on robust policy package that takes into account both the direct and indirect energy and climate related policy costs (£1.27 billion in 2019) and deploying a net-zero infrastructure plan that links the policy, regulatory and fiscal opportunities and challenges for the UK. This in turn would attract private investment needed to build the net zero economy in the UK. To achieve this a cross government approach, in partnership industry, underpinned by the following is necessary:
- Delivery of an energy system that is affordable and sustainable to all energy users.
- Delivery of clear policies that will enable our sector to innovate, invest and in turn support our customer industries to benefit from the net zero transition.
- A UK carbon market that achieves net zero emissions whilst enabling foundation industries such as ours to remain internationally competitive.
Such a partnership approach would enable the sector to continue as the provider of technologies and products that are fundamental to successfully decarbonising the UK economy and reverse the existing trend that has seen the sectors production capacity decrease by 40% in the UK. The alternative scenario of continued tightening of emissions without the above measures could see further investment leakage and subsequent import of more carbon intensive goods.
CIA is the organisation that represents chemical and pharmaceutical companies located throughout the UK. The UK chemical and pharmaceutical industries have a strong record as manufacturing’s number one export earner, adding over £17 billion of value to the economy, on sales of around £50 billion.
We are trade intensive and, with 70% of operations headquartered from overseas, we compete with global production locations for mobile investment capital. A provider of essential inputs to UK value chains the industry spends £4 billion each year on investment in buildings, vehicles and machinery and invests over £5 billion each year on research and development
The chemical industry improved its labour productivity by around 25% between 2008 and 2016 and pays its workers on average 30% more than the average manufacturing worker. A large number of our jobs are in the north of England and Scotland.