Imperial industrial energy expert Dr Gbemi Oluleye and former Member of Parliament, and now Peer, Lord Browne of Ladyton have contributed to Net Zero Exchanges: a series of short essays, each co-written by a climate academic and UK Parliamentarian, setting out where work is needed on climate policy and demonstrating how readily to hand many solutions are.
This essay first appeared in the All-Party Parliamentary Climate Change Group and Policy Connect’s collection: Net Zero Exchanges: Connecting Research and Policy for Climate Action.
Decarbonising industry is among the most difficult challenges of the net zero transition. This transition requires action from the Government, but also action from within industry itself. It is a shared responsibility and will require an openness to change and the courage to do things differently. No single technology is going to do the job and there is not a simple policy fix. Industries of the future will need to innovate their business models to remain competitive in a global marketplace.
In this essay, we present a model for combining and prioritising among different decarbonisation approaches. This model can help businesses owners and policy makers navigate the net zero transition, whilst maintaining the competitiveness of UK industry.
Industrial processes, excluding power generation, are responsible for one-third of global energy use and 40% of global carbon dioxide emissions (CO2) emissions.[i] These include emissions from heavy industry such as steel and cement production, as well as sectors such as electronics manufacturing. Eliminating industrial emissions would also go a long way to keeping global temperature increases below 1.5°C. Accelerating the decarbonisation of UK industry is important not only to satisfy the UK’s 2050 target, but also to get us on track to meet the future carbon budgets and the UK’s Nationally Determined Contribution submitted ahead of COP26.
But far from just being sources of pollution, industrial sectors are also at the core of developing low-carbon solutions. The goal is to reduce emissions from industrial operations whilst industry continues to supply transformational infrastructure and technologies needed to decarbonise other sectors like power, buildings and transport. The process industry also makes a significant contribution to the UK economy with a share of 17.4% GDP, providing employment to over 40,000 people directly and many more through supply chains. Decarbonising the industrial sector whilst ensuring it continues to thrive is vital for transitioning the UK to a green economy – yet so far progress has been painfully slow.
Much discussion about industrial decarbonisation focuses on the roll out of technological innovations such as carbon capture and storage (CCS). The lack of progress in developing these technologies to the scale necessary should instill a healthy dose of caution. They will have a role to play but cannot be relied on to do all of the heavily lifting. Also, resources are limited, and public finances are stretched. Every pound spent on expensive new technologies is a pound not spent on other existing opportunities and processes that are tried and tested. We want to focus less on individual technologies, and more on systems that businesses can use to decarbonise in the most cost-effective manner possible. Only when we embrace decarbonisation systems in the round can we achieve net zero whilst at the same time supporting thriving industries.
From single technologies to thinking in systems
Any system to decarbonise a sector will require a series of concepts that in turn may utilise a range of technologies. Focusing on concepts for decarbonisation instead of single technologies is necessary, as a combination of technologies will be required in any given sector or industrial process. Achieving net zero within an industrial site or several sites within a region, known as a ‘cluster’, requires a combination of concepts, and their associated technologies. There are three main concepts that businesses can use.
1. Material and Energy Efficiency
Increasing efficiency means reducing material and energy demand for a given unit of output. For example, through the simultaneous production of heat and power (electricity), known as Combined Heat and Power (CHP). A wide range of technologies, both existing and under research and development, can contribute to greater efficiency in material and energy use.
2. Switching to alternative fuels and feedstocks
Fuel switching requires changing to lower-carbon fuels (e.g. hydrogen, biomass, synthetic methane) and switching to electricity. Feedstock switching involves material substitution, light-weighting and ‘circular economy’ interventions. Altering how the consumer uses products, including through shifts from goods to services and improving product longevity, can further reduce energy demand.
3. Carbon Capture and Storage (CCS)
CCS ultimately may be the only way to stop CO2 from some industrial processes (e.g. from making cement) from entering the atmosphere. While carbon capture technology has reached demonstration scale in the power sector, application in industry is less advanced.
Picking the right concepts
Implementing the concepts is not a one size fits all exercise. The industrial sector is diverse and includes manufacturing processes which range from highly energy-intensive steel production and petrochemicals processing to low-energy electronics fabrication. This diversity is reflected in the GHG emissions per sector and final energy use (Figures 1 and 2). Concepts for decarbonisation will be unique to each industrial sectors characteristics and location.
To accelerate the transition, multiple concepts will need to be married together into an industrial decarbonisation system. Industrial decarbonisation systems, combinations of different concepts for any given site, create demand volumes for new technologies capable of driving down costs. A hierarchical ordering of concepts for any site can help achieve cost-effective decarbonisation. The hierarchy presented in figure 3 illustrates the idea of exhausting least cost decarbonisation concepts first in the creation of a decarbonisation system.
Barriers to uptake
The current level of adoption of decarbonisation concepts that actually can achieve radical reductions in GHG emissions is zero. This is due to five known broad barriers to adopting such concepts.
The first barrier is financial and arises from the higher capital and operating costs of concepts and associated technologies for decarbonisation. Primary process equipment has high initial investment costs with a pay-back period of up to 50 years, as in the case of cement plants. Such equipment also has a long design life of more than 20 years, as in the case of furnaces for the iron & steel industry.[ii]
The second barrier is the potential loss of competitiveness resulting from the adoption of capital-intensive strategies. The products of energy intensive industries are traded in globally competitive markets. High levels of competition also tend to prevent collaboration on decarbonisation projects. Such collaborations are important for sharing Research and Development (R&D) risks and creating demand volumes to reduce the cost of capital-intensive technologies. Increased production costs in one region compared to another with less stringent mitigation targets will reduce competitiveness.
The third barrier is technical, covering challenges associated with delivering engineering solutions – especially the lack of tested and reliable disruptive technologies. Unaddressed technical barriers reduce both investor and end-user confidence in emerging technologies.
The fourth barrier is regulatory uncertainty. Uncertainty regarding future policy and regulation undermines investor confidence and further increases investor risks, which translate into higher costs of capital, and ultimately undermines the economic case for capital-intensive equipment.
A fifth barrier is associated with industrial characteristics. Conservatism in some sectors, implies new technologies need to be evolutionary rather than radical, or need first to have been established in other sectors, prior to adoption. Some industries typically operate in the business-to-business market. These industries do not have a direct relationship with consumers and as such pressure to improve their environmental performance is indirect. Consequently, improved environmental performance is difficult to sell at a premium.
Overall, if left unaddressed, the barriers above will reduce the achievable level of industrial decarbonisation by 2050. Addressing the barriers requires a focus on industrial decarbonisation systems, strong and robust policy support, and innovations in business models which set the competitive strategy of businesses.
Crucially, this cannot all come from Government. Businesses need to be proactive in planning for the transition. In the automobile sector, innovation is going beyond electrification. New models, such as ‘mobility-as-a-service’ are being developed and trialed. This is the type of thinking that we need to see from inside UK industry.
Policy interventions provide mandates and incentives to support decarbonisation since no single policy is ever a “silver bullet the diversity inherent in industrial sectors and processes implies that a comprehensive package of policies would be required. .Furthermore, given that 2050 is less than 30 years away, there is an urgent need to find the most efficient way to implement policy.
Several policy instruments exists to support a net zero economy in the UK: Research and Development (R&D) grants, R&D tax credits, Industrial decarbonisation and energy efficiency action plans and clean growth, fuel switching, industrial strategy challenge and clean steel funds. However, gaps still remain in the UK’s industrial decarbonisation policy framework including market pull policy interventions to support full scale commercialisation. Additionally high-value policies like carbon pricing with border adjustments or government procurement of low-carbon goods can help create a market for low-carbon technologies and products.
As part of their Covid-19 response the Government has made some encouraging steps forwards. However, not enough focus, especially in the industrial sector is given to how business models can be improved to allow for disruptive innovation. There is a need for policies that allow new business models to be trialed and encourage a shift in mindset from businesses owners. Far from being a burden, such innovation could enhance industrial competitiveness if innovations in business models occur simultaneously with technical, policy and finance model innovations.
Corporate decision-makers and policymakers each have a part to play in hastening a sustainable transition to net zero industry. Simultaneous innovations in business models and policies can accelerate adoption of industrial decarbonisation systems while, at the same time, decarbonising UK industry and maintaining competitiveness.
[i] Brown et al., 2012. Reducing CO2 emissions from heavy industry: a review of technologies and considerations for policy makers. https://www.imperial.ac.uk/media/imperial-college/grantham-institute/public/publications/briefing-papers/Reducing-CO2-emissions-from-heavy-industry—Grantham-BP-7.pdf
[ii] Wesseling et al., 2017. The transition of energy intensive processing industries towards deep decarbonisation: Characteristics and implications for future research. https://doi.org/10.1016/j.rser.2017.05.156
Funding from Research England’s QR allocation to the Imperial College London’s Grantham Institute – Climate Change and the Environment and Energy Futures Lab supported Dr Oluleye and to deliver a round-table discussion by the All-Party Parliamentary Group on Climate Change on industrial decarbonisation and a briefing paper with members of parliament as co-authors.