Clear plan of action needed to cut industrial emissions, improve competitiveness and create jobs
#NetZeroIndustry – Following the Government’s recent strategies on #DecarbonisingIndustry and hydrogen, today (9 Sept) the Aldersgate Group (@AldersgateGrp) launches two major publications from Frontier Economics and University College London (@UCL) calling for a more detailed policy framework to drive low carbon investment in heavy industry.
Based on significant engagement and case studies from several industrial sectors, these papers present tangible solutions to accelerate the decarbonisation of UK heavy industry in a way that will drive innovation, increase competitiveness, and create jobs across the country.
Heavy industrial sectors like steel, cement, glass, and ceramics are essential to the UK’s economic prosperity, contributing £170bn to the economy and directly employing nearly 3 million people across the country.
As the UK transitions to a net zero economy, heavy industrial sectors will be fundamental to providing the building blocks for low carbon infrastructure, goods and services.
They also have a unique opportunity to develop new competitive advantages and expand into new markets during the net zero transition.
Despite some welcome commitments in the Government’s Industrial Decarbonisation Strategy and Hydrogen Strategy, a more comprehensive and ambitious plan of action is urgently needed to deliver cuts from industrial emissions at the pace and scale demanded by the UK’s net zero target.
Backed by extensive engagement with industry representatives from manufacturing sectors such as steel, cement, glass, ceramics and chemicals, today’s publications put forward specific recommendations to scale up innovation, roll out supporting infrastructure and accelerate low carbon investment in industrial clusters and dispersed sites.
They also feature proposals to tackle the investment and competitiveness barrier created by high industrial electricity prices, which are slowing down efforts to electrify and decarbonise parts of industry.
Sam French, Business Development Director at Johnson Matthey, said:
“Decarbonising and modernising the UK’s heavy industrial sectors is an urgent necessity on both climate and economic grounds.
“These two reports provide a clear plan of action to drive innovation, cut the cost of new technologies, improve the competitiveness of industry and drive job creation.
“Industry needs a clear, net zero aligned roadmap to deploy hydrogen and CCUS infrastructure, alongside predictable revenue mechanisms and carbon pricing trajectories to unlock private investment in new technologies, business models and skills.”
Dr Martyn Kenny, Sustainability Director at Tarmac, said:
“Achieving the decarbonisation of UK heavy industry will require close collaboration between government and the UK cement and concrete sector. A comprehensive and ambitious plan is now needed to develop the policy environment, technologies and supporting infrastructure essential to decarbonise both industrial clusters and dispersed sites.
“Tarmac is committed to this transition and has defined a clear pathway to not only achieve net zero by 2050, but even to go beyond net zero and remove more carbon than we emit.
“It is now critical that government delivers the policies needed to provide clarity and certainty, in order to facilitate a just transition that supports investment, competitiveness and jobs.”
Nick Molho, Executive Director of the Aldersgate Group, said:
“There is strong appetite across heavy industrial sectors to accelerate emission cuts and seize the potential opportunities created by the net zero transition in terms of innovation, new investment and job creation at industrial sites across the country.
The Government now has a key role to play in supporting industry, by taking firm decisions on infrastructure funding and policy support and by tackling head on the investment barrier stemming from high industrial electricity prices.”
Accelerating the decarbonisation of industrial clusters and dispersed sites
Industrial clusters and dispersed sites (those located more than 25km from the 6 major industrial clusters) contributed an estimated 37.6 MtCO2e and 33.6 MtCO2e of emissions respectively in 2018.
Despite differences in their net zero journeys and technological solutions, industries predominantly located in clusters (steel, chemicals) and those mainly located in dispersed sites (cement, glass, ceramics) will require similar policy solutions to decarbonise.
Key recommendations
1. Provide certainty to industry
Provide certainty to industry on the future availability of low carbon hydrogen, biomass, and carbon capture usage and storage (CCUS), by using contracts for differences (CfDs) and government matchmaking.
Industrial producers need confidence that low carbon hydrogen and CCUS infrastructure will be available to support innovation and investment in low carbon technologies.
To build on the commitments of its Hydrogen Strategy, the Government should establish a certification for low carbon hydrogen, explore CfDs for key alternative fuels and CCUS, legislate for low carbon hydrogen and CCUS targets, and act as a “matchmaker” between suppliers and industrial producers.
2. Work closely with LEPs
Work closely with Local Enterprise Partnerships (LEPs), local authorities (LAs) and devolved governments to design local infrastructure plans to help connect dispersed industries to the infrastructure being deployed in clusters. LEPs and LAs can play a key role in ensuring that dispersed industrial sites such as cement plants have access to the essential low carbon infrastructure located in industrial clusters.
3. Provide targeted UK ETS free allowances
Provide targeted UK ETS free allowances or support through Carbon Border Adjustment Mechanisms (CBAMs) to prevent unintended impacts during the transition to low carbon business models.
In cases where the requisite policy, infrastructure, and technology support is not in place to allow specific industries to decarbonise and respond to carbon price signals, industries should receive interim support in the form of free allowances or CBAMs to avoid a competitive disadvantage and the risk of carbon leakage.
4. Drive greater resource efficiency in industry
Drive greater resource efficiency in industry through changes to regulation and increased accessibility of funding.
Changes to building and waste regulations and introducing targets for recyclable material could be of significant benefit to sectors such as glass (which can use recycled glass in production) and steel (around 90% of end-of-life steel could be collected and recycled in electric arc furnaces).
Access to innovation funding, such as through the Industrial Energy Transformation Fund, should be made easier by simplifying timelines and allowing businesses to apply for funding on a rolling basis.
5. Introduce demand-side policies
Introduce demand-side policies to grow the markets for low carbon and resource efficient industrial products.
This could be done by using product standards (similar to the Buy Clean California Act for construction materials), procurement policies (such as the CO2 Performance Ladder used in the Netherlands), and information campaigns.
“The UK has an opportunity to develop competitive, low carbon industries to match growing global demand for low carbon industrial products. Meeting this demand is likely to help a very broad range of industrial sectors. Our report highlights the most important and urgent actions that the Government must take to help UK industry take the lead in winning new contracts, whilst also meeting our climate commitments.
“These actions include improving the predictability of the future supplies of low carbon fuels, enhancing the links between Westminster and parts of local government (including Local Authorities and Local Enterprise Partnerships), and ensuring the UK’s trade policy supports the competitiveness of UK businesses as they move to net zero – such as through the possible introduction of carbon border adjustments and demand led measures such as product standards.”
Delivering competitive industrial electricity prices in an era of transition (UCL)
The UK has significantly higher industrial electricity prices than European competitors. With electrification key to industrial decarbonisation, delivering low cost and low carbon electricity is essential. Seizing the opportunity provided by the rapidly declining policy costs of renewables must be a priority.
Key recommendations
1. Maintain an efficient framework to accelerate investment in the cheapest forms of mature renewable energy such as onshore wind, accompanied by a predictable, rising carbon price to reduce investor risk. Offshore wind should be further supported with investment in surrounding supply chains and infrastructures such as ports.
2. Establish an integrated approach to network development, funding, and pricing. Independent Future System Operator Objective(s) should include more coordinated oversight of future generation and network developments, to minimise costs and facilitate the power sector’s transition to zero emissions.
3. Support continued growth of interconnection (through Ofgem’s cap-and-floor revenues system) and offshore grid development and reduce friction in electricity trade. Each 1GW of interconnection capacity can reduce UK wholesale electricity prices by 1-2%, [5] by making low cost, low carbon imports available and increasing variable supply and demand. The government should seek to restore UK participation in the day-ahead electricity markets with neighbouring EU countries, the absence of which is estimated to result in £45 million in lost trade in 2021. [6]
4. Establish a market for long-term, zero carbon and tradable electricity contracts, grounded in the declining cost of unsubsidised renewable electricity sources. These contracts would mitigate the indirect costs of carbon prices, and the volatility of fossil fuel prices.
5. Investigate options for moving some policy costs from electricity prices to gas prices over time, with interim competitiveness support for major gas users unable to electrify or transition to low carbon fuels in the short term. This will incentivise electrification and more evenly distribute the costs of the low carbon transition, while ensuring industry has the appropriate support to remain competitive.
6. Improve scrutiny and transparency of reported electricity price data. In order to effectively assess the degree to which electricity prices faced by UK industrial consumers are changing, both over time and relative to international competitors, reliable data is crucial. As part of Quality Assurance we recommend a review of how this data is requested, collected, and reported by BEIS.
Michael Grubb, Professor of Professor of Energy and Climate Change at UCL Institute for Sustainable Resources, said:
“The UK electricity system has already undergone part of its low carbon transition. Thanks in large part to carbon pricing, coal is no longer significant – and that in itself reduces the impact of carbon costs on UK electricity prices. But industry is still carrying the legacy cost of building up renewables, which are part of the larger energy transition under way. Those costs could be spread more evenly, and in particular, reforms are needed to ensure that industry can benefit both from access to the now-cheap renewables, and from smoother participation in the capacity market.”
Paul Drummond, Senior Research Fellow at UCL Institute for Sustainable Resources, said:
“Historic investment in the deployment of renewable energy technology, and the substantial reductions in cost it produced, now presents the UK with a clear opportunity to both reduce the high electricity prices faced by energy-intensive industries relative to many of continental neighbours, and emissions reduction through increasing electrification. The government must make sure a clear, long-term policy architecture is in place to encourage investment in increasingly subsidy-free renewables and grid interconnection, and effective and efficient markets in electricity trade and system balancing.”
Edward Heath-Whyte, Head of Environment and Sustainability at Liberty Steel, said:
“As we approach COP26 it is important to ensure the low carbon transition for energy intensive industries is supported by appropriate policy measures. Liberty Steel UK is committed to supplying GREENSTEEL from its Rotherham Electric Arc Furnaces as part of the UK’s transition to becoming a low carbon economy. It is important that government takes steps to help drive this innovation from industry, in order to accelerate the net zero transition. As the Rotherham steelmaking plant is a ‘dispersed site’, we support the recommendations made in this report to help us and other sites like Rotherham accelerate the pace and cost-efficiency of reaching net zero.”
Martin Casey, Director of Public Affairs Europe at CEMEX, said:
“CEMEX very much welcomes these two reports: Individually, and when considered together, they provide deep insight into the real challenges faced by UK industry and provide well thought-out suggestions for actions and policies that the Government should take onboard. The competitive, sustainable and climate neutral future of essential material production in the UK depends on it”.
Laura Cohen, Chief Executive of the British Ceramic Confederation, said:
“Almost all of our members’ 150 sites are located off-cluster. Toch from firing with gas we need to move to hydrogen, bioenergy, or electricity. We need policy interventions now for off-cluster manufacturers to remain competitive over this extended period until options are widely available, particularly as most of our members are paying an eye-watering £130/MWh which makes electrification uneconomic. Given the scale of the challenge we need much more government funding and supportive policies to develop and implement decarbonisation technologies for these off-cluster sites.”
Shane Hughes, Carbon Consulting Lead at Ramboll, said:
“We welcome Aldersgate Group’s well informed policy recommendations. Britain kick started the Industrial Revolution but now heavy industry urgently needs ambitious policies to support the UK to again lead in the Net Zero Revolution. Get this right and heavy industry can both be climate positive and attract massive inward investment.”
The Aldersgate Group’s new report, commissioned from Frontier Economics, Accelerating the decarbonisation of industrial clusters and dispersed sites.
The Aldersgate Group’s new briefing, commissioned from UCL, Delivering competitive industrial electricity prices in an era of transition.
These publications will be discussed at a public webinar from 9.30am to 11.15am on September 9 with panellists from key industry organisations and lead authors of each report.
Embed climate change and environmental sustainability at all stages of the national curriculum – A comprehensive strategy on low carbon skills is essential
15th Jul 2021: The Aldersgate Group has called on the Government to accelerate progress on resource efficiency to secure major benefits in terms of emission savings, reduced environmental impacts, job creation and economic resilience.
Although government strategies have built a positive overarching vision for resource efficiency, policy commitments in this area have lacked ambition, pace and detail, and appear to have received limited buy-in from other government departments beyond the Department for Environment, Food and Rural Affairs (Defra).
Driving greater resource efficiency across the economy would deliver significant economic and environmental benefits, with research suggesting that such action would deliver 80% of the additional emission savings required to deliver the UK’s Fifth Carbon Budget with a net gain in Gross Value Added of £9.1bn by 2030.
In its new report, Closing the Loop: Time to crack on with resource efficiency, the Aldersgate Group calls for much greater urgency, stronger cross-government collaboration, and a more systemic approach to improve resource efficiency across the economy.
The report sets out priority areas where the development and implementation of existing policy proposals needs to be accelerated, highlights policy gaps where new proposals are needed, and makes specific policy recommendations to improve resource efficiency across the construction and automotive industries, two resource intensive sectors.
Key recommendations for the future of England’s resources and waste policy include:
- A comprehensive strategy on low carbon skills will be essential to support an economy-wide drive towards greater resource efficiency. This should include embedding climate change and environmental sustainability at all stages of the national curriculum, encouraging a much higher uptake of STEM subjects, and broadening the scope of the Apprenticeship Levy Standards. To support workers in need of reskilling, the Government should continue to provide financial support for training, upskilling and retraining through the National Skills Fund and encourage Further Education Institutions to offer a broader range of flexible, short-term courses.
- The Government should facilitate greater trade in circular products and materials, by featuring circular economy principles in the trade and sustainable development chapters of trade agreements.
- Resource efficiency should become a cross-government priority
- The Government should accelerate the implementation of proposals which will have the most rapid impact in improving product design.
- The Environment Bill – which will introduce long-term, legally binding targets on waste reduction and resource productivity – should be amended to provide for more robust interim targets that will provide businesses with greater clarity on the near-term policy actions that the Government will take to meet the long-term targets under the Bill.
- New proposals should be put forward to tackle ongoing market barriers that are slowing the take-up of more resource efficient business models.
The report also calls for a range of measures to drive greater efficiency in the resource intensive sectors of construction and automotive. This includes the introduction of design regulations for buildings, streamlined lifecycle assessment methodologies for buildings and vehicles, and the introduction of mandatory product standards for construction materials and vehicle components.
Nick Molho, Executive Director, Aldersgate Group said:
“Improving resource efficiency across the economy makes sense on all counts: it reduces demands on the environment, cuts emissions, makes our economy more resilient to supply shocks, and can grow supply chains and create jobs in areas such as recycling, repair, remanufacturing and reuse. The Government set some good ambitions in 2018 but the time has come to move to the delivery phase. What we need now need is an urgent, cross-government and systemic approach that improves product design, supports the development of new business models and engages citizens to help drive down resource consumption.”
Martin Casey, Director, Public Affairs, Europe at CEMEX said:
“CEMEX welcomes this important report by the Aldersgate Group and the scope of its recommendations which can drive forward the goal of real resource efficiency across the whole economy. It’s vital that the policy framework, Government, and the regulatory bodies proactively take note and enable businesses to maximise their resource efficiency potential and deliver on the promise of a truly circular economy.”
Libby Peake, Head of Resource Policy at Green Alliance said:
“We know that the overconsumption of resources is driving both climate change and nature’s degradation and yet it is very rarely addressed by government policy. The good news, as this report outlines, is that there are many simple actions the government could – and should – be taking to improve the situation which would not only be good for the environment, but also the economy and the public. It really is time to get on with it.”
Peter Jelkeby, Country Retail Manager and Chief Sustainability Officer, IKEA UK and Ireland said:
“Developing a circular economy is essential for building a low-carbon business and society. At IKEA, our aim is to transform into a fully circular business. To do this, we are committed to designing all of our products using only renewable or recycled materials, and to develop circular services. As such, we fully endorse the recommendations in this timely report, and the call for Government to accelerate its progress on resource efficiency, ahead of COP26, making the UK a leader in this field. We also welcome the call for more green jobs, firmly rooted in the skills we’ll need to make the circular economy a reality. At IKEA, our Recovery department employs over 350 people in the UK. Not only do they play a vital role in helping us strive for zero waste, but they’re also a living example of how we are creating the retail workforce of the future; supporting a circular, green economy and our collective journey to climate positivity.”
Dr Adam Read, External Affairs Director at SUEZ said:
“If we can’t get BEIS, DEFRA, MHCLG and DfT to develop policies that complement one another and support societal change in a holistic way, then we may end up with any number of unintended consequences that undermine our drive towards greater resource efficiency and sustainability. This welcome report from the Aldersgate Group highlights another of SUEZ’s key concerns, namely a lack of real focus by Government on actually reducing consumption and incentivising reuse, refill and repair. The portfolio of recent policy reforms that have been consulted on all focus mainly on driving better recycling, with the DEFRA Waste Prevention Programme failing to deliver any real target for reducing consumption and highlighting the important role of the consumer in this process. The UK needs leadership around better citizen awareness campaigns, product eco-design, life-cycle thinking and closed loop materials management, and this must happen soon if we are to give ourselves a chance of decarbonising by 2050.”
Anna Turrell, Head of Environment at Tesco said:
“If we are to meet our shared ambition to deliver a net zero economy, we must rethink how we manage the resources available to us more efficiently. We support the Aldersgate Group’s recommendations that the solution is to create a closed loop circular economy and that this is going to require substantive actions from business, industry and government to achieve. We are playing our part and working with partners to reach this ambition by, for example on packaging, removing and reducing single use packaging wherever possible, introducing reusable alternatives, and working to ensure everything that’s left is recyclable as a part of a closed loop.”
David Symons, UK Director of Sustainability at WSP said:
“Using materials more efficiently is an easy way to grow Britain’s productivity, increase resilience and help deliver a net zero economy. Government has a great opportunity to up the pace on waste management – growing the economy and delivering on one of the public’s highest priority environmental issues.”
Julia Barrett, Chief Sustainability Officer at Willmott Dixon said:
“The built environment consumes almost half of the materials extracted globally every year, so as this report sets out, we need a systematic rethink of how we design, construct and use buildings. At Willmott Dixon we have set a target of zero avoidable construction waste by 2030 and welcome the recommendations put forward today: for Government to urgently accelerate the transition to the circular economy by using fiscal mechanisms to change behaviour, for government procurement to demonstrate leadership, and for the creation of cross departmental policy and standards to drive resource efficiency.”
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