'World first' industrial decarbonisation strategy developed in the UK

Out-Law News | 19 Mar 2021 | 2:57 pm | 6 min. read

New plans have been set out to slash the carbon produced by UK industry as part of the drive to achieve 'net zero' emissions in the country by 2050. The industrial decarbonisation strategy is being hailed by the UK government as the first of its kind anywhere in the world.

The strategy acknowledges that the transition to a low carbon economy will create challenges for the industrial sector, since it is likely to increase their costs and therefore potentially risk placing UK industry at a competitive disadvantage compared to rivals elsewhere in the world where decarbonisation is less of a priority.

However, the government has said that "extensive, systematic change across all sectors" is necessary for the UK to meet its 2050 net zero emissions target. It has confirmed that, for UK industry, this will mean the level of emissions will need to fall 90% on 2018 levels by that deadline, and by at least two thirds by 2035 if the country is to be on track to meet its later target.

Stacey Collins of Pinsent Masons, the law firm behind Out-Law, who specialises in climate mitigation projects, said: "The scale of ambition in this strategy is high, but so is the scale of the carbon issue that it needs to address. The industrial sector accounts for around 24% of total global carbon dioxide, and a huge global effort is needed to bring that into line with global climate mitigation ambitions."

"Of course, industry will want to see quickly the detail of how the strategy will be implemented. However, many industrial companies are already investing in decarbonisation strategies, technologies and methods of working. This strategy will give those early movers some comfort that such investment is well-placed. For those companies in industry that are not already planning for their low carbon transition, then this strategy is likely a wake up call that there is a limited future for high carbon products and processes."

Frew Gillian

Gillian Frew

Partner

We're seeing the government put together a package of support mechanisms for low carbon hydrogen and CCUS that will allow private finance to make the substantial investments that will be needed.

The UK government department behind the new strategy, the Department for Business, Energy and Industrial Strategy (BEIS), has used the strategy to plot a roadmap to 2050 to give an overview of the kind of support businesses can expect as they decarbonise their operations.

BEIS said that the 2020s will be "a crucial decade" for setting out "the policy and infrastructure foundations to enable deep decarbonisation". Among other things, it will seek to incentivise the development and commercialisation of low carbon technologies so that the use of low carbon fuels such as hydrogen, electricity and bioenergy by UK industry becomes the norm, unless fossil fuel use is combined with carbon capture, usage and storage (CCUS). The government promised regulation would further "support the development of the market for low carbon products".

By 2030, the government hopes that 20 terawatt hours of industrial energy use will have switched from fossil fuels to low carbon sources, and that around three metric tons of carbon from industrial emissions a year is captured by 2030.

Under the strategy it is envisaged that government funding for incentivising reduced industrial emissions will ease in the 2030s and 2040s, with the market expected to have matured sufficiently by then to drive the necessary investments.

A core strand of the strategy focuses on encouraging investors to support low carbon businesses and technologies. Specific funding mechanisms to support deployment and use of CCUS solutions and low carbon hydrogen infrastructure are envisaged, while the government also said it plans to align the existing cap on allowances under the UK Emissions Trading Scheme with the UK’s net zero ambition by January 2024 as a means of encouraging businesses to reduce their own emissions. The cap sets an overall limit on the emissions allowed in the system.

The government also confirmed its plans to evaluate the impact of the proposed new EU carbon border adjustment mechanism on the UK.

Gillian Frew, energy finance expert at Pinsent Masons, said: "We're seeing the government put together a package of support mechanisms for low carbon hydrogen and CCUS that will allow private finance to make the substantial investments that will be needed".

"We know that a regulated asset base model as proposed for CCUS tranport and storage can achieve a low cost of capital, and if low carbon hydrogen is supported by a contract for difference as we expect, hydrogen will have support that is familiar and bankable. We are also encouraged by the ability of the new UK Infrastructure Bank to support new technologies and "crowd in" investment," she said.

A major aspect of the new strategy is centred on transforming industrial processes. A number of measures are proposed in this respect, from supporting innovation in and the widespread deployment of low carbon technologies, as well as a stronger emphasis on more sustainable practices like remanufacturing to reduce the need for new raw materials. In addition, greater adoption of digital technologies by industry is expected, with artificial intelligence, 3D printing and 'digital twin' technologies, all identified as having a role to play in reducing emissions

In relation to low carbon technologies, the government is keen to adopt a technology neutral approach, but specific support for developers of CCUS and low carbon hydrogen solutions is expected.

"The key roles that CCUS and low carbon hydrogen will need to play in supporting the decarbonisation of current industry, the promotion of new low carbon sectors and the reduction of emissions to levels consistent with net zero are underlined in the strategy," said Ronan Lambe of Pinsent Masons, who specialises in renewable energy projects.

"Both technologies are considered important parts of the government’s focus on ‘low regret’ deployment in the 2020s – these being technologies which we know we need. Little new information however is provided on business models and revenue mechanisms which will underpin industrial carbon capture and low carbon hydrogen projects. Investors looking for further clarity on exactly how government plans to support such technologies will need to await the various updates scheduled to be published at varying points later this year," he said.

Planning law expert Nick McDonald of Pinsent Masons said: "As would be expected for such crucial infrastructure, the strategy refers to Project Speed, the government's programme to deliver infrastructure 'better, greener and faster'".

"The strategy in particular notes that the nationally significant infrastructure projects (NSIPs) consenting regime will be refreshed – that is welcome, with various tweaks to the system which will help give developers and investors confidence. More significantly the strategy also picks up the Project Speed target of seeking to halve the time some projects take to go through the system,." he said.

Collins Stacey Nov_2019

Stacey Collins

Partner

There is a lot for the UK industrial sector to consider, and there is more related regulation and policy to come over future months

"Whilst there are elements of the Planning Act 2008 regime which could be improved in terms of timescales, both the speed and certainty, a reduction of that kind of scale is very significant and will bring different challenges for project promoters and the Planning Inspectorate. It is crucial that the government does not introduce new risks to the consenting regime as it seeks to allow infrastructure to come forward more quickly," McDonald said.

In its strategy, the government has identified that decarbonising industry is a global challenge. Ahead of hosting the COP26 UN Climate Conference in Glasgow in November this year, the government has vowed to be "a global leader in industrial decarbonisation and manufacturing of low carbon industrial products" and "use the full range of levers available" to achieve this.

One of the levers the government has said it will pull to achieve industrial decarbonisation is its international trade policy. It also said it would work through forums such as the G7, G20, Office for Economic Cooperation and Development (OECD) and United Nations Environment Programme (UNEP), to "create a coalition of countries committed to shared approaches to developing the market for low carbon products".

Further plans to reduce the costs of supplying low carbon industrial products also form part of the strategy, with mutual exchange of knowledge and dialogue to prevent overcapacity among the actions planned.

Ultimately, the government wants the UK net zero industry to evolve to the point where it can take advantage of "expanding export opportunities for the products and services needed in a low carbon economy".

Stacey Collins said:  "The strategy is a broad and complex document, which perhaps reflects the complexity of decarbonising the industrial sector. There is a lot for the UK industrial sector to consider, and there is more related regulation and policy to come over future months. It is perhaps important that industrial companies collaborate on their decarbonisation strategies by sharing ideas, innovations and the financial burden of piloting new ideas. We are already seeing that happen in certain sectors, such as cement, and such collaboration will likely speed up the sector transition that is needed. The timelines that the government has set out for that sector transition are incredibly challenging, but if they can be met then the UK infrastructure sector will be well positioned to be a world-leader in low carbon industrial solutions."