Chemistry-led solutions underpin renewable energy, low emission transportation, energy-efficient homes and businesses, and sustainable agriculture. It lies at the heart of the UK’s development of a low carbon economy and its drive for clean growth.
Although parts of the sector are considered to be energy intensive, the sector overall is a critical enabler of climate change solutions. For every tonne of carbon emitted from production, two tonnes of carbon are saved through the climate solutions our sector enables.
To deliver sustainable innovation for a better world we have five key enablers essential to us accelerating and commercialising UK innovation, creating new and innovative supply chains and accelerating the pace of regional growth.
Cost-competitive energy for use as fuel and feedstocks (raw material) are critical to all parts of industry, both upstream businesses in which energy accounts for up to 70% of operating costs, and less intensive downstream chemical businesses, who are still significant energy users and also depend on supplies of basic chemical inputs.
The UK is significantly behind other major industrial nations with respect to cost competitiveness and this factor has, arguably, significantly accelerated the decline of industry in the UK and prevented the UK from enjoying its share of global industrial growth. However, the sector has experienced record growth despite the tough conditions.
The UK has made good progress in decarbonising supplies; however, this has led to uncompetitive prices. For industry, as large users, electricity prices are now over 50% higher than in competing European Member States, putting UK industry at a distinct disadvantage to major competitors.
An energy cost review for Department for Business, Energy and Industrial Strategy (BEIS) concluded that prices are higher than necessary because low carbon policies have ‘picked winners’ and there have been inefficiencies in the procurement of network infrastructure. The report makes a series of recommendations to simplify policies and make them more effective, and these recommendations should be implemented.
In the meantime, the Chemistry Council supports the work by BEIS to maximise the scope of energy-intensive activities qualifying for relief from policy related costs.
Over the past decade, US development of shale gas has precipitated extraordinary economic benefits, with an estimated US$202bn of chemical sector investment forecast by 2020 to harness its use as fuel and feedstock.
Shale gas has the potential to make the most significant and immediate contribution to the UK economy and specifically to regional development, with an estimated £3.3bn annual spend at peak development and precipitating 64,500 jobs.
Since 2017, imports of ethane feedstock – including supplies from US shale – have been helping to sustain the economics of the UK’s three ethylene crackers in the north east and Scotland, which are critical building blocks for the country’s manufacturing base.
As North Sea supplies decline, the UK is increasingly reliant on imported gas. Imported gas currently provides 60% of supplies and our dependency could reach 75% by 2030. The development of UK shale reserves could increase security of supplies of gas, whether for use as a fuel or feedstock.
Shale gas extraction within a robust regulatory framework presents significant opportunity for the UK with minimal environmental impact. Community benefits from developing such resources would also be significant. As the cleanest-burning fossil fuel, gas has an important role to play in electricity generation and as a source of heat during the low-carbon transition. The Industrial Strategy White Paper also signals work to explore shale’s potential contribution to Clean Growth through deployment with technologies such as carbon capture, use and storage, and the hydrogen economy.
Progress in developing shale gas in England has been slow and policy needs to be developed at a national level. The Government has taken action to streamline the planning process and is considering how to implement a single Shale Environmental Regulator; both actions will help support the successful development of shale gas reserves. Although progress is slow, this year has seen the start in Lancashire of exploratory drilling with hydraulic fracturing.
Securing Energy outside of the EU
Withdrawal from the EU has implications both for energy markets and climate change related policy costs.
Free and fair access to the EU’s internal energy market (IEM), and, in the case of nuclear, recognition under Euratom, are vital to support competitive and secure supplies of electricity and gas. In the absence of a reciprocal agreement, the UK also needs to ensure there is fair access to the IEM; i.e. that there are no non-tariff barriers.
Turning to EU climate policies, the most significant instrument is the EU Emissions Trading Scheme (EU ETS). We believe the Government should work with industry to ensure that EU ETS Phase 4 provisions minimise production and investment leakage. At the same time, the UK should develop a low-cost UK alternative to the EU ETS that not only delivers CO2 emission reductions but supports the ability of UK industry to compete on a global basis. In the interests of competitiveness and growth, the UK’s future approach should be no more ambitious than that of the EU ETS.
EU exit also underlines the need to rationalise the UK climate policy mix and maximise the scope and level of relief from renewable policy and carbon price impacts on power costs. Carbon pricing as a means of reducing carbon emissions is a good mechanism, but there needs to be a level playing field internationally; not a UK-only tax on fossil fuel inputs to electricity generation.
Following the landmark Paris Agreement, which confirmed the need for keeping global warming to ‘well below 2 degrees Celsius’ by the end of the century, the transition to a global low-carbon economy is gathering momentum.
The Chemistry Council can play an important role in delivering these programmes. A study for the International Council of Chemical Associations (ICCA) estimates that, with the right business and policies, the solutions provided by the global chemistry-based industry could reduce emissions by 2.5 GtCO2e per year in 2030 – a reduction equivalent to the total emissions from France, Germany, Italy, and the UK combined30.
However, in order to realise such opportunities, it is critical that the sector can remain competitive during the UK’s low-carbon transition by becoming more energy efficient and reducing its greenhouse gas (GHG) emissions.
The Chemistry Council welcomed the publication, in October 2018, of the Chemical Industry Decarbonisation and Energy Efficiency Roadmap Action Plan31. The Chemistry Council Working Groups have an important role in overseeing and co-ordinating delivery of several actions and tasks identified in the roadmap.
The actions in the plan align with the Chemistry Council’s growth priorities (innovation, creating new competitive supply chains, and regions and infrastructure). Actions include the increased use of bio-resources, waste and captured carbon and hydrogen as a feedstock, clustering and carbon capture and storage, and the development and scale-up of innovative decarbonisation and energy efficiency technologies. Indeed, some of the work, such as innovations in energy storage, could generate enablers for climate solutions in other sectors.
The work underway by the Office of National Statistics to develop a national materials database would support this strategy by making businesses in the chemical sector aware of the availability across the UK of material and waste resources for use as feedstocks. In particular, by providing information at a granular level the database will allow industry to develop the business-cases to drive investment in the use of waste and other material resources.
The action plan also builds on the sector’s long track record for energy efficiency improvements under voluntary agreements and, most recently, the Climate Change Agreements. Indeed, since 1990 the sector has improved its energy efficiency by 42%. This has been achieved through a range of cost-effective actions, such as installing combined heat and power generation (CHP). CHP supplies a third of our electricity needs.
While much of the potential from implementing established technologies has been realised, some remains – albeit with long paybacks. Action plan commitments to implement an Industrial Energy Efficiency Scheme and a Waste Heat Recovery Scheme would therefore enable these near-term opportunities to be realised.
The Chemistry Council will work with Government and industry stakeholders to:
Access to people with the right skills is one of the sector’s key priorities. Chemistry sector businesses rely on skilled people to drive productivity and growth. In return, they have always provided a high level of workforce training to further develop individuals’ skills and meet the demands of stringent health and safety regulation.
This skilled people requirement includes:
Attracting new talent, both vocational and academic is a challenge we face and the industry has an ageing workforce leading to a high replacement demand. We need to present the industry as a positive career choice. The sector also wants to see more emphasis placed upon encouraging young people to study sciences, engineering and technical subjects at school, college and university.
Changing technologies and ways of working, coupled with longer working lives, are putting increasing focus on lifelong learning and intensifying the demand for new skills. The chemical industry globally, and especially in this country, has a high skill level. However as the Director for Education and Skills at the Organisation for Economic Cooperation and Development (OECD), Andreas Schleicher, said recently “Technology is racing ahead of the skills people have”. A population with the right mix of skills can help ensure globalisation translates into jobs and productivity gains, according to the OECD’s Skills Outlook 2017 report. On a local level the UK can learn from this outlook.