COP 26 has focussed attention on the UK and how it will lead the charge to achieving net zero. At the All-Party Parliamentary Manufacturing Group (APMG), we argue that a net zero economy must have at its heart a manufacturing sector that is able to create low carbon material and resources at a competitive rate. A core part of achieving this transition is through a strong Energy-Intensive Industry (EII) that is able to compete globally: it is this industry that produces those critical inputs for the manufacturing supply chain such as ceramics, steel, concrete, chemicals, and paper.
In the past few months, the manufacturing industry has seen an unprecedented rise in energy costs, causing supply chain chaos and highlighting the structural issues with the UK’s energy infrastructure. According to the International Energy Agency, gas prices rose by 300% since March 2020[1], and the Energy Intensive User Group (EIUG) have seen electricity costs of £230/MWh. This is three times higher than the last peak due to the ‘Beast from the East’ in 2018, when energy prices hit a maximum of £80/ MWh[2]. Both gas and electricity prices are set to continue rising into 2022, reinforcing the need for a rebalancing and serious reform of energy costs – something the sector has been seeking for a long while.
This current energy crisis highlights the structural issues within the energy pricing structure and we urge government to review how the current interplay of taxes, levies and energy infrastructure is costing industry. Currently, with costs being pushed along the supply chain, there is very little capacity to consider how new technologies will be used to support companies to become more resource efficient and use clean fuels.
Recently in collaboration with the EIUG, the APMG has been exploring how energy-intensive manufacturers can transition to net zero by 2050. In our first roundtable, chaired by Jack Dromey MP and with the Minister for Investment Lord Grimstone attending, the APMG discussed a shared long-term ambition for energy-intensive industries in their transition to net zero. It was agreed that a tripartite policy approach was required with trade bodies, BEIS and Ofgem working together to achieve a common goal.
Minister Grimstone acknowledged the common ground that we all have in achieving our carbon neutral goals and outlined the key investments BEIS has made into the manufacturing sector. It is estimated that under the current Emissions Trading System (ETS), government is providing £140 million in support. He set out that there will be a review into the role of Ofgem as well as of the schemes that are currently in operation. He urged businesses to respond to this review.
Our second October roundtable with Mark Pawsey MP and a number of other parliamentarians was even more timely and focussed on the current energy pricing crisis. Across industry, academia and at the EIUG and APMG we believe that key government action should be:
- A winter cost containment measure with a review of energy price impacts on industry, bearing in mind that loans will not alleviate the issue for the majority of manufacturers.
- A review into evidence of investment leakage.
- Adoption of environmental management systems that help improve energy and resource efficiency.[3]
These concerns and policy proposals were not addressed in the autumn spending review and we will continue to work with the government on putting in place the right policy measures.
However, beyond the challenges of energy pricing and the complexity of subsidies and schemes, there are a multitude of opportunities for industry in decarbonisation technology, not least the potential to deploy at scale modern methods of manufacture. Bruce Adderley, UKRI Transforming Foundation Industries Challenge Director stressed that the net zero challenge will require significant investment in manufacturing capacity and processes which must also be matched by the right skills within the industry to deliver this transformation. With Industry 4.0 a driving pillar, there will be huge interest into how energy-intensive industries can use new decarbonisation technologies to streamline and modernise extremely traditional manufacturing processes. UK manufacturers will need to turn to cleaner energy sources such as hydrogen, electrify processes where possible and adapt their plants for CCUS, amongst a host of other techniques.
It’s really encouraging that the UK Infrastructure Bank is proposing to support investment of over £40 billion and “pull through low carbon technologies to maturity and scale”[4]. This should provide the energy intensive sector and manufacturing more generally with great opportunities to develop and use these technologies.
In August 2021 and October 2021, the government released the Hydrogen and Net Zero Strategies respectively. Key policies for industry included the Industrial Energy Transformation fund, providing £315 million in funding and the investment into Carbon Capture, Utilisation and Storage (CCUS) with £915 million of grant funding announced and an overall ambition of £1 billion into the CCUS infrastructure fund. The review of UK ETS will be particularly important to energy-intensive industries and to ensuring that long term pricing and levy structures do not inhibit investment in the UK and the sector’s ability to operate competitively.We welcome the commitments to decarbonising industry in these documents and eagerly anticipate its delivery using feedback and wider forums to ensure that our common goals are achieved.
The APMG strongly believes that manufacturing is at the core of the UK’s transition to net zero and we will be continuing our work in this area, well beyond COP 26. In our wider programme, we will look at the future of trade, circular economy and resource efficiency, understanding the future manufacturing skills market and digital transformation.
A full summary of the Energy intensive Industry Roundtables and our latest research can be found at policyconnect.org.uk/apmg
| To find out more about the APMG and its work, reach out to Head of Industry, Technology and Innovation Floriane Fidegnon at Floriane.fidegnon@policyconnect.org.uk. |
[1] Energy Intensive Users Group, October 2021
[2] Quarterly Energy Prices, DEIS, December 2018 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/766791/QEP_Q3_2018.pdf
[3] Manufacturing Resilience: Driving Recovery towards net zero , Policy Connect Manufacturing Commission, July 2021
[4] Net Zero Strategy: Build Back Greener, October 2021, HM Government https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1028157/net-zero-strategy.pdf
