INSIGHT: UK chemicals decarbonisation only possible with large private, public effort

LONDON (ICIS)–Continued successful large-scale chemicals production in the UK relies on further significant decarbonising of the sector.

In theory, the investments planned by energy and chemicals companies to help reduce carbon output from specific industrial clusters across the country should help secure production.

The UK’s Prime Minister Boris Johnson outlined on Wednesday ambitions to become a technology leader in carbon capture and storage (CCS), aiming to remove 10m tonnes of carbon dioxide emissions by 2030.

Industry and government will have to work much more closely together than they have in the recent past, however, if the so-called ‘Green Industrial revolution’ is to be realised.

And that means not simply investing wisely but also creating an operating and cost environment in which a cleaner or greener industry can thrive.

It does not mean cherry picking industries but understanding the role that energy intensive sectors play in the fabric of a modern economy.

“The chemicals sector plays a critical role in delivering a successfully decarbonised economy, whether that be providing raw materials for the hydrogen economy or delivering carbon capture and use technologies,” a report from the UK’s trade group Chemical Industries Association (CIA) said.

“Given the high capital and operational costs, the challenge is that UK policies are set up to secure and incentivise investment and deployment of any project aimed to make significant contribution in the UK against other competing nations,” it added.

The UK plans to pump £12bn into a new green agenda – to include CCS, the development of a hydrogen economy, and a radical shift in the transport fuel mix as soon as 2030.

But on its doorstep, the EU has agreed a €750bn green recovery package, with some of the funds available destined to decarbonisation projects.

Of course, jobs are being tied to decarbonisation as is regional development in the UK’s industrial heartlands.

The government said that it would invest to “create and support” up to 250,000 highly-skilled green jobs in the UK and spur over three times as much private sector investment by 2030.

How much of this is ‘new’ government money, however, has been questioned.

Industrial decarbonisation would create 43,000 jobs, the CIA report suggests. Total new jobs could reach 221,000 if the UK became a major hydrogen exporter.

“With a potential to unlock £17.8bn/year in gross value added and as an enabler to capture an estimated 260m tonnes/year of CO2 [carbon dioxide], it is an opportunity [decarbonisation and development of a hydrogen economy] the UK cannot afford to miss,” the CIA report said.

Clearly, there is talk of a “just transition” to a low carbon or net zero economy, which probably can only be achieved if all parts of government and business work together.

That begs the question whether the climate crisis is big enough to capture the minds and ambitions of governments over time, not simply over the course of one administration or another.

Industry will invest for the long term, and its long-term survival is under threat in both the UK and the EU if it does not act to dramatically reduce CO2 emissions.

It needs to develop the technologies and invest at scale to support the green agenda and the push towards zero carbon by the middle of this century.

The practicalities are that while industry is well placed to transform and to drive another industrial revolution in the UK, the right investment signals are needed from government alongside the right business models.

“Significant and long-term grants or tax incentives are 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,” the CIA said.

Access to grants should consider both direct and indirect job creation, it added.

Infrastructure development will be vitally important as safe and efficient hydrogen transport and storage is introduced.

Operating costs will be a bone of contention for the sector as they have been for years.

UK industrial electricity costs are 71% higher than those in the rest of Europe, largely because the UK has incentivised wind power but not green power generation on land.

The pass-through costs to the chemical industry of the UK’s climate policies was £722m in 2019, the CIA said.

Clarification: Clarifies jobs figure in paragraph 12

The annual cost to the chemicals sector of UK energy and climate-related policies is £1.27bn, it calculates.

“Once established, the market must be subject to effective competition and incentivising demand to help drive down prices,” the CIA report concluded.

Insight by Nigel Davis