Decoding policy series: industry decarbonisation

17 Feb 2021

The government’s adoption of a net-zero greenhouse gas target has focused attention on the need to substantially decarbonise UK industry. In response, the Department for Business, Energy and Industrial Strategy has been busy over the last 18 months working on a raft of funding and policy initiatives to support improved energy efficiency, the introduction of new fuels and the demonstration of deep decarbonisation technologies.

Commitment to low carbon clusters

Last year the Government committed the UK to establishing the world’s first net-zero carbon industrial cluster by 2040, with at least one low carbon cluster by 2030.  It also announced a number of funding schemes, mostly targeting industrial clusters and energy-intensive industry. These include the Industrial Decarbonisation Challenge (£170 m), Transforming Foundations Industries Challenge (£66m), Industrial Fuel Switching (£20m), Clean Steel Fund (£250m) and the Industrial Energy Transformation Fund (£315) to help with capital investments across industry in energy efficiency and deep decarbonisation projects. A number of other programmes relevant to industry are focused on decarbonising fossil fuel use and new low carbon fuels including the Carbon Capture and Storage (CCS) Infrastructure Fund (£800m) and the Low Carbon Hydrogen Production Fund (£90m).

Recognising that market forces alone cannot be relied on to deliver a low carbon transition for industry, the Energy White Paper, published before Christmas, ramped up the ambition on industrial decarbonisation by committing to delivering four low-carbon clusters by 2030. To achieve this, £1 billion of funding has been made available over the period to 2025 to facilitate the deployment of Carbon Capture, Use and Storage (CCUS) in two industrial clusters by the mid-2020s, and a further two clusters by 2030, which together should capture 10 MtCO2 per year by the end of the decade.  The Government also pledged a Net Zero Hydrogen Fund to support low-carbon hydrogen production, providing £240 million of capital co-investment out to 2024/25, with the aim of developing 5GW of low-carbon hydrogen production capacity by 2030, delivering 42TWh of hydrogen per year.

Decarbonisation and the green recovery

The Scottish Government is also committed to delivering industrial decarbonisation while supporting a green recovery. Existing funding through the Scottish Industrial Energy Transformation Fund (£34m) and the Energy Transition Fund (£62m), have been complemented by new announcements of an Emerging Energy Technologies Fund (£180m) to support the development of hydrogen and CCS, a Carbon Capture and Utilisation Challenge Fund (£5m) and a Low Carbon Manufacturing Challenge Fund (£26m).

It is interesting to compare these funding commitments to the emissions savings from different options contained in the CCC’s latest pathway analysis published as part of its advice on the Sixth Carbon Budget (6CB). By 2050 under the CCC’s “Balanced Pathway” the main emissions savings from UK industry come from hydrogen (14 Mt), electrification (14 Mt), CCS (9Mt), resource efficiency and material substitution (9Mt), energy efficiency (4 Mt) and bioenergy (2.5Mt).

Significant barriers to potential

Many of these options are the focus of significant Government support but, to date, there has been little in the funding and policy announcements on delivering savings from either electrification or resource/material efficiency, both of which make a significant contribution in the CCC analysis. In particular, further research and demonstration is needed to address the significant uncertainties around the costs and practicalities of decarbonising high temperature heat by electrifying processes such as kilns and furnaces. Likewise, while many analyses show that resource and material efficiency can provide significant low cost savings, there are still significant regulatory, business model and behavioural barriers to realising this potential in practice.

Overall, it is clear that the UK’s industrial decarbonisation policy has come a long way since the summer of 2019. However, as the CCC have urged, “Government must move from the current piecemeal approach to a comprehensive transition support framework”. Such a framework also needs to outline how support can be extended beyond the current focus on energy-intensive industries and industrial clusters, to the rest of industry. A recent report to support the CCC’s 6CB recommendations highlighted some of the elements that would need to be in such a framework including providing an overarching carbon reduction incentive while addressing carbon leakage; deploying and coordinating CCUS and hydrogen infrastructure and encouraging integration and clustering; improving the energy performance of existing assets, technologies and processes; incentivising innovation by supporting research across the commercialisation stages; improving the efficiency of material and product use, and creating markets for low-carbon goods and services; and creating ‘enabling policies’, such as on jobs and skills, that would support a long-term industrial strategy.

The forthcoming Industrial Decarbonisation Strategy to be published in “Spring” 2021 will provide the perfect opportunity for the Government to set out such a comprehensive approach