Energy-intensive industries are vital to modern economies but are also a major source of greenhouse gases (GHG). In the UK, manufacturing accounts for 12% of our overall GHG emissions. Half of this arises from just three primary activities, namely steel, cement and chemicals manufacturing, which are the focus of this study.
To varying degrees these sectors are also facing strong economic pressure, with many more relying on older capital stock than their competitors abroad. New investment is needed, and it needs to be cleaner, and help these manufacturing sectors innovate towards thriving in a “Net Zero” GHG world. Given the UK’s legal carbon budgets, the Climate Change Committee (CCC) projects that deep emission reductions need to be secured within 15 years.
This study presents three broadly-applicable findings. First, that deep emissions reductions are possible, but the options are mostly immature and the best routes remain to be tested at scale. Second, such reductions will not happen without strong, sustained and sophisticated government support. And third, the solutions in each of the three sectors differ, and require different approaches.
For steel, the big challenges are very specific: emissions are dominated (95%) by the blast furnace sites at Port Talbot and Scunthorpe. We suggest different approaches for each site, based upon their particular locations, to help UK industry gain experience and a stake in both carbon capture and storage (CCS), and hydrogen-based Direct Reduced Iron (DRI) technologies, the latter likely coupled directly with major clean hydrogen investments.
The cement sector needs innovation and investment throughout the supply chain, through to and including its key market – the construction industry. With smaller more dispersed sites, CCUS – utilising captured CO2 – should be fostered where appropriate, along with development and standardisation of new construction materials, and removal of distortions that may inhibit use of renewable heating fuels.
The chemicals sector is the most diverse, and many of the opportunities for decarbonisation involve electrification. This is impeded by high UK electricity prices. Alongside targeted supports, including for integration in large industrial decarbonisation clusters, we point to a logic of policy reforms to spread the overall costs of the low carbon transition more fairly across fuels.
The transition in these sectors is unlikely to be effective without a meaningful carbon price. Border adjustments or other WTO-compatible consumption-based pricing may be required to avoid adverse competitive impacts. Echoing the findings of a major Carbon Trust report on carbon pricing in energy intensive industries a decade ago, this may require sector-specific solutions which match the sector characteristics, so as to best support sustained and efficient investment whilst minimising any trade distortions.
At present, the UK risks an approach of ‘muddling through’ which is likely to raise the costs of the transition without building a strong stake in the manufacturing industries of a low carbon economy. This report outlines the changes in approach needed to ‘Forge Ahead’.
This report, led by Matthew Winning with support from Catherine Willan, draws both on analysis of diverse national and international literatures, and interviews with key companies in each sector. It is one of four sectoral studies on decarbonising the UK economy conducted by the UCL Institute of Sustainable Resources with support from HSBC UK, for which we are most grateful.
Preface to: Towards Net Zero in UK manufacturing: Options and challenges for the biggest emitting sectors, by Dr Matthew Winning and Dr Catherine Willan, sponsored by HSBC, October 2021.