Powering up Britain

Industrial decarbonisation at core of government net zero growth plan but continued collaboration is key to sustain momentum

April 2023

Last week’s ‘Powering up Britain’ plan brought some welcome clarity on the government’s next steps for decarbonising the UK’s energy-intensive industry, including the selection of the first industrial carbon capture and hydrogen projects in Track-1 clusters due to gain access to Business Models support and the launch of the Track-2 cluster selection process.

Announcements also include new funding for industrial fuel-switching and energy efficiency, as well as some updates on government plans for addressing carbon leakage, planning delays, green skills shortages, and the development of greenhouse gas removal.

However, as industry is expected to reduce its emissions by 71% from currently 76 to 22 MtCO₂e per year by 2035, decisive action is needed for scaling innovative net zero technologies, along with a long-term vision for developing the required infrastructure, skills, supply chains and effective carbon markets.

Delivery at pace and scale will also require sustained action on the ground. Supporting the coalitions which are driving decarbonisation in the UK’s largest industry clusters, empowering net zero coalitions in new clusters and dispersed industrial sites, and ensuring effective knowledge exchange and collaboration between industry, academia and governments will be critical to enable all industrial sites to decarbonise quickly and realise the economic opportunities of net zero.

Here we provide a summary and reflection of key announcements for industrial decarbonisation.

Background

With the title ‘Powering up Britain’, the government has published its updated plans for energy security and net zero, in flurry of over 40 policy documents, new consultations and other updates.

This includes the two main policy documents Energy Security Plan and Net Zero Growth Plan, as well as the Carbon Budget Delivery Plan, which provides further detail on the contribution of different policy packages to meeting the UK’s statutory emissions reductions targets until 2035 (6th Carbon Budget) in response to last year’s High Court ruling, and the government’s response to the Independent Net Zero Review (see IDRIC’s summary on its recommendations for industrial decarbonisation).

The ‘Net Zero Growth Plan’ lays out the government’s updated strategy for achieving Net Zero with a strong emphasis on the scaling up of green and low carbon technologies for decarbonising power generation, industry, homes and transport.

Clarity for carbon capture and storage

A clear priority in the Net Zero Growth Plan is carbon capture and storage, which is recognised as a sector where the UK has international advantage.

To support building and operating the first carbon capture and storage projects in the UK, up to £20bn of funding was recently announced in the spring budget (with expected spending of £1bn/year). The new net-zero plan now brought more clarity on the next steps for deploying the four carbon capture clusters the government aims to deploy by 2030.

In the existing ‘Track-1’ clusters, the HyNet cluster in the North-West and the East Coast Cluster (Teesside and the Humber), the first carbon capture projects to proceed to negotiations were announced. Of an initial 20 shortlisted projects, eight are now the first in line to receive Business Model support and to send captured carbon to the offshore storage facilities currently in development.

Three of the selected projects will fit carbon capture onto industrial plants, including for cement production, one of the sectors that is particularly difficult to decarbonise. In addition, the eight projects contain two hydrogen, two energy from waste and one power-CCUS projects.

Notably absent from selected projects, however, were carbon capture projects from the Humber, the cluster with the highest emissions in the UK.

The net-zero plan also announced the long-awaited launch of the ‘Track-2’ of the cluster sequencing which aims to enable carbon capture and storage in two further clusters. This puts Scotland firmly back on the map of advancing major transport and storage infrastructure in the UK, after having been put in ‘reserved’ in the first cluster sequencing round. The Scottish Acorn project and the Viking CCS project in the Humber are now likely being fast-tracked in the coming months.

Speeding up plans for developing non-pipeline CO₂ transport options announced in the net-zero plan will be critical for clusters and dispersed sites without access to geological storage nearby, such as the industries of South Wales, which are preparing to transport captured carbon by ship to offshore stores.

Although carbon capture, utilisation and storage is not a panacea and will be just one component of a system of solutions, it is a critical technology for industrial sectors with limited alternative routes for reducing their emissions and a key enabler of other decarbonisation options.

“The announcements signal the government’s ambition to deploy CCS at a large scale and thereby provide this much-needed pathway for decarbonising key industries. Realising these first-of-a-kind projects is key to collect real-world data and add to the knowledge we need to deploy widely these technologies in the existing clusters and beyond”.

IDRIC Director Prof. Mercedes Maroto-Valer

Advancing all decarbonisation options

In addition to initiatives on carbon capture, there was some recognition of other critical pathways for industrial decarbonisation.

For example, the Government reiterated the expectation that industrial resource and energy efficiency might save up to 12 MtCO₂e by 2050, and announced the opening of a third round of the Industrial Energy Transformation Fund. This extra £185m in funding will be welcome news for companies aiming to embark on energy efficiency measures or replace fossil fuels with alternative low carbon fuels.

It was also confirmed that the Climate Change Agreements Schemes, under which eligible businesses pay reduced Climate Change Levy rates in exchange for investments in energy efficiency, will be extended until 2025 and possibly beyond.

Industrial fuel switching is expected to reduce emissions by 7 – 19 MtCO₂e by 2035, but the net-zero plan also recognises some of the challenges companies face.

A recent IDRIC Policy Roundtable on industrial electrification highlighted significant barriers even for companies where electrification would be the most effective and technologically mature decarbonisation pathway. Last week’s announcements include a welcome commitment towards ‘rebalancing’ the costs of gas vs. electricity and an upcoming consultation on industrial electrification, to which we will feed in findings from our recent stakeholder discussions.

Enabling large scale industrial fuel switching will also need to ensure hydrogen supply for industry. 15 innovative new low carbon hydrogen production projects funded under the £240m Net Zero Hydrogen Fund are now progressing from engineering studies to the next application round and looking to receive capital expenditure support. In addition, 20 ‘green’ hydrogen projects selected in the first electrolytic hydrogen allocation round last year are entering due diligence, with contracts likely to be awarded in Q4 2023 and a second allocation round announced for Q4 2023.

With development of the business models providing revenue support for hydrogen production already at an advanced stage, more clarity on how this hydrogen will be transported and stored and what role the Future Systems Operator will play, is now urgently needed. The government response to its recent consultation on this is expected shortly.

Preventing carbon leakage

A key barrier for industrial fuel switching to electrification or hydrogen has been the cost of low carbon fuels compared to existing fossil fuels. With most energy-intensive sectors also exposed to international competition, the risk of carbon leakage, or production moving to places with no or less stringent emissions reductions mandates, has long been a concern.

The government has now launched a consultation on carbon leakage, which seeks views on important measures such as Carbon Border Adjustment Mechanisms (CBAM), mandatory product standards and embodied emissions reporting. Introducing a CBAM, which would put a price on the embedded carbon in important products and thereby ensure the carbon price importers pay is equivalent to the carbon price of domestic production, could be key measure to prevent carbon leakage and support domestic producers.

Agreement has recently been found in the EU to implement a CBAM on imports of cement, iron and steel, aluminium, fertilisers, electricity and hydrogen from countries with absent or less stringent carbon monitoring.

Effective carbon markets are crucial for incentivising the adoption of low carbon technologies.

Further details on government proposals for developing the UK-ETS, e.g. a net zero consistent cap, free allocations and plans for extending the use of emissions trading across the economy is expected in a government response to a recent consultation shortly. Confirmed in last week’s net-zero plan was the plan to include negative emissions in the UK-ETS.

Tackling residual emissions

Negative emissions through the deployment of Greenhouse Gas Removal (GGR) technologies will be key to remove and permanently store historic emissions that have built up in the atmosphere as well as tackle residual emissions from the sectors most difficult to decarbonise.

With ongoing work on the financial support schemes (business models) for building and operating these technologies, last-week’s announcements also indicates that GGR projects will likely be able to apply to Track-1 and Track-2 of the cluster sequencing process, including the two bioenergy with carbon capture (BECCS) power projects not selected at this stage.

If approved by parliament in the current Energy Bill, engineered GGR removals will soon count towards the UK carbon budgets, as recommended by the Climate Change Committee. This measure and their inclusion in the UK-ETS will make effective monitoring, reporting and verification (MRV) critical to ensure integrity and, in the case of BECCS, sustainability. Further work on MRV framework and the upcoming Biomass Strategy, were announced in the net-zero plan.

Net Zero Workforce as a critical bottleneck

As identified from a recent IDRIC-funded study, there is a significant and urgent shortage of skilled workers to ensure the delivery of industrial cluster decarbonisation projects before 2030. We therefore welcome the government’s recognition for greater policy certainty and the need for further action to ensure the delivery of a net zero workforce, e.g. scaling up current DfE’s programmes for apprenticeships, Skills Bootcamps and T Levels.

Whilst it is promising to see the initiatives designed to support skill development in decarbonising the wider economy, there is a pressing need for specific initiatives to develop the skills required to decarbonise and support heavy industry, e.g. carbon capture technologies, retrofitting to hydrogen fuels etc, which are not explicitly referenced in the government’s current plan. Through our extensive research programme, IDRIC is well-placed to advise on the training needs for the deployment of these key technologies.

As noted in the net-zero plan, the apprenticeship reform is currently underway, however it is imperative that this reform leads to establishing mechanisms to increase the number of routes into industrial decarbonisation roles and attracting more young people from diverse and/or deprived backgrounds to establish fair, well-supported and future-proofed careers in industry.

The government will publish the Net Zero and Nature Workforce Action Plan in early 2024 and IDRIC would expect targeted recommendations for developing the skills capacity needed for decarbonising energy-intensive industry. To ensure the UK can fully maximise the socio-economic potential of decarbonising heavy industry, and recognising the pressing nature of these skills gaps for industry, IDRIC is advocating for the establishment of a targeted, specific initiative for hard-to-abate industrial sectors.

Matching ambition at pace and scale

The net-zero plan brought welcome endorsement of the prioirty of industrial decarbonisation and a recognition of the growth potential of green industry, a key argument by the Independent Net Zero Review.

However, with limited new measures and funding across the economy, maximising this growth potential and delivering the emissions reduction needed will remain challenging. According to the government’s own calculations, the measures announced across the economy will fall short of meeting the 2035 emissions reductions targets in the Sixth Carbon Budget.

The updated Green Finance Strategy, also published last week, outlines further avenues for leveraging additional public and private investment in industrial decarbonisation, including via the UK Infrastructure Bank (UKIB).

However, considering the enormous ramping up of government support for green technologies in the US (Inflation Reduction Act) and the EU, current funding for green technologies and renewable energy in the UK will unlikely be enough for attracting the scale of long-term private investment and skilled workforce needed to decarbonise UK industry.

In addition, effective coordination of government policy will be critical. A core recommendation of the Independent Net Zero Review has therefore been to establish a dedicated Office of Net Zero Delivery to facilitate leadership, coordination and accountability across government departments and strategies.

Instead, responsibility for ensuring effective delivery across the economy will now lie with the newly formed Department for Energy Security and Net Zero, with the new Cabinet Committee for Domestic and Economic Affairs (Energy, Climate and Net Zero) expected to aid cross-government coordination.

Ensuring the delivery of a consistent net zero strategy and close coordination with the devolved administrations will remain vital.

Long-term vision for net zero technology delivery

Urgent action combined with a long-term vision is needed and IDRIC particularly welcomes the commitment to develop a net zero technology roadmap, following the Independent Net Zero Review’s advice to “detail decision points for developing and deploying R&D and technologies that are critical for enabling the net zero pathway to 2050”.

“Decarbonisation will look different across industrial sectors and locations, so we need to advance all solutions and think how we can put innovative technology into practice. IDRIC is particularly pleased that the government has announced the development of a technology roadmap, which was a key recommendation from IDRIC as part of the Independent Net Zero Review”.

Prof. Mercedes Maroto-Valer

As referenced in the Mission Zero Report, IDRIC’s key advice is for such a roadmap consider not only the research and innovation gaps and the time needed to develop critical skills and supply chains, but also the lead times for upgrades to new and existing infrastructure, bottlenecks in the planning and consenting process, and timescales for the passing of new primary legislation through Parliament.

At a recent IDRIC Policy Roundtable on planning, consenting and permitting, project developers and regulators discussed the lack of clarity and resources causing frequent delays in achieving planning consent or environmental permits. Such regulatory barriers for scaling and implementing net zero technologies were also recognised in Sir Patrick Vallance’s review of regulation of emerging technologies, which was published alongside the net-zero plan last week.

Building on a wealth of expertise to shape the next phase of industrial decarbonisation

Reducing emissions from industry from currently 76 to 22 MtCO₂e per year by 2035 will require decisive action across a range of priority areas to the decarbonisation of sectors which belong to the most challenging parts of the economy to decarbonise.

We now have wealth of expertise, innovation and momentum for tackling industrial emissions. Joint action between industry, academia and other stakeholders on the ground, such as supported by the Industrial Decarbonisation Challenge in the UK’s main clusters of industrial production, have been key in developing solutions and driving decarbonisation action on multiple fronts.

The recently announced £5m Local Industrial Decarbonisation Plans competition is a welcome step towards empowering smaller industry clusters and dispersed sites to similarly develop tailored decarbonisation solutions.

However, given the scale of the challenge and the ending of other significant funding streams, including the £210m Industrial Decarbonisation Challenge, there is a danger that important momentum driven by cross-sector collaboration could be lost.

“The UK’s largest industrial clusters have developed ambitious roadmaps for net zero, outlining the necessary paths to deliver on these ambitions. Now we need to make sure we sustain and build on these collaborations and ensure the knowledge is shared widely to enable all UK industry to decarbonise”.