The UK chemicals industry is facing a “worrying” outlook that could see its competitiveness undermined by a continued reliance on fossil fuels that risks resulting in major job losses and lost investment.
That is the conclusion of a new assessment from researchers at think tank clean alliance, which analyses the chemicals industry’s ability to transition towards net zero and clean energy goals.
The report highlights how the UK chemicals industry contributes almost a fifth of the UK’s industrial emissions and as such has a critical role to play in the net zero transition. It stresses that while the sector relies heavily on fossil fuels for energy and as a feedstock, it also produces essential components for a range of clean technologies, such as batteries, wind turbines, and heat pumps.
Green Alliance concludes some 140,000 industry jobs are at risk over the long term if it remains dependent on fossil fuels and policymakers fail to plan for its decarbonisation. Almost two and a half times the number of people employed by the steel industry could lose their jobs if the chemicals sector fails to transition to greener ways of working, the report warns.
The study argues that including plans to modernise the sector and ramp up investment in clean technologies through the UK’s forthcoming Industrial Strategy could unlock growth opportunities in industrial heartlands such as the North West, Teesside and Humberside, while also driving down emissions.
“We need a UK chemicals industry, the highly skilled jobs it provides, and the contribution it will make to a greener economy,” said Liam Hardy, senior policy analyst at Green Alliance. “But it will take deliberate government policy to find a way forward: for example, by requiring a certain amount of carbon in chemicals to come from greener sources through a ‘green carbon mandate’.
“Businesses we spoke to also said innovation funding is often complex, overly prescriptive and focused on the short term. The forthcoming industrial strategy is a key moment for the government to set out a plan for a thriving green chemical industry fit for the future.”
Yet while Green Alliance highlighted the importance of supportive government policy, sector stakeholders claimed the complexity of the industry meant policymakers have long struggled to understand it. UK chemicals firms, for instance, are highly exposed to international competition given their relatively high operating costs and global supply chains.
And while both the previous and current government have committed £20bn to support carbon capture and storage projects, pledged £240m to accelerate the switch to hydrogen fuel, and backed industrial clusters such as HyNet in the north west, other aspects of the chemicals industry net zero transition are lagging behind those of competitors.
For example, industry stakeholders told Green Alliance that the government had failed to adequately support electrification across the sector, with industrial electricity prices in the UK proving consistently higher than the EU average. Meanwhile, no direct incentives currently exist for companies to replace fossil fuel feedstocks.
“The UK has a long history of innovation and expertise in chemicals, but the government has never really understood our industry,” said David Bott, head of innovation at the Society of Chemical Industry. “It’s now under threat from international competitors offering better incentives to pursue a greener future, and better-aligned regulation.
“We need an industrial strategy that helps steer the UK chemicals industry on to a positive path, directing its attention towards long term risks and opportunities.”
The report added that any forthcoming industrial strategy must contend with price and productivity headwinds after output across the UK chemicals industry fell by nine per cent and employment by seven per cent last year. Moreover, the closure of CF Fertilisers last ammonia plant at Billingham, County Durham, in 2022 was attributed to high natural gas prices and rising carbon costs.
“The UK chemicals industry has an important role to play in a greener economy, but we need to set it up to succeed,” said Graeme Cruickshank, chief technology and innovation officer at CPI. “The government can help by prioritising how we use resources critical to the chemicals industry, like hydrogen and biomass, that are in limited supply.
“The industry will also need to electrify quickly in the coming years, meaning it needs lots of affordable power, so building out the grid must be a priority.”
Thomas Birk, managing director at chemicals producer BASF, similarly argued that the UK chemicals industry needs a “clear vision” for its future.
“Given our global net zero target, including the recent commitment to Scope 3 reductions, BASF in the UK was pleased to support this Green Alliance initiative,” he said. “A strong and competitive chemicals sector needs to be at the centre of our ambitions for a net zero transition.
“To achieve this, the UK sector needs a clear vision for its future, delivered through an industrial strategy and leveraging the UK’s R&D leadership position as well as supporting secure and resilient supply chains.”
Launching Labour’s recent General Election manifesto, Sir Keir Starmer bemoaned the lack of a clear industrial strategy for the UK under the previous government and repeatedly stressed Labour’s plan to establish a new Industrial Strategy Council.
As such, Labour promised an industrial strategy that would be “mission driven and focused on the future”, put an end to “short term policymaking”, and take a “sectoral approach” that is “clear eyed about where the UK enjoys advantages over other countries”.
“Our new industrial strategy will deliver long-term, stable growth that works for all workers and businesses right across the UK,” said a government spokesperson. “That includes backing our strong chemicals industry, which exported nearly £60bn last year and is a crucial part of delivering a fairer, greener future and meeting our 2050 net zero target.”
A report published earlier this year by the Royal Society suggested that biomass, plastic waste, and captured carbon dioxide could all play a major role in decarbonising the global chemicals industry and slashing the carbon footprint of countless everyday products.
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