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Reports set out measures to drive investment in low carbon industrial clusters

Published September 21, 2021

Reports set out measures to drive investment in low carbon industrial clusters

A leading industry group has published two reports which set out suggested measures to drive investment in the decarbonisation of industrial clusters and reduce electricity prices to industry.

Together, the papers present a number of steps to support the decarbonisation of the UK’s heavy industry at the pace and scale demanded by the 2050 net zero target. The publications also feature proposals to reduce industrial electricity prices.

The Aldersgate Group commissioned two papers: one a report looking at measure to support low carbon industrial clusters; and the other a briefing looking at ways to reduce electricity prices for heavy industry.

Industrial clusters (mainly containing steel and chemicals companies) and dispersed sites (mainly cement, glass and ceramics companies) contributed an estimated 37.6 MtCO2e and 33.6 MtCO2e of emissions respectively in 2018.

A report from Frontier Economics calls for the government to help decarbonise industrial clusters by establishing certification for low carbon hydrogen, exploring contracts for difference for key alternative fuels and carbon capture and storage.

The Fronter Economics report calls for the government to work with local authorities on plans to connect dispersed industries to the infrastructure being deployed in clusters. It argues industries should receive interim support in the form of free UK ETS allowances or Carbon Border Adjustment Mechanisms and easier access to innovation funding. The introduction of demand-side policies would enable the markets for low carbon and resource efficient industrial products to grow more rapidly.

The UCL briefing looks at ways to reduce industrial electricity prices.  Key recommendations include the need to accelerate investment in established forms of renewable energy such as onshore wind. The document also calls for a more integrated approach to network development, funding, and pricing. It argues the government should continue with efforts to add interconnection capacity on the grid and seek to restore UK participation in the day-ahead electricity markets with neighbouring EU countries.

Furthermore, the UCL paper says, the UK needs a market for long-term, zero carbon and tradable electricity contracts. Electrification would be incentivised if policy costs were moved from electricity prices to gas prices. And this would be supported by an emphasis on reliable electricity price data.

Matthew Bell, Director and Joint Head of Public Policy at Frontier Economics, said: “Our report highlights the most important action the Government must take to help UK industry take the lead in winning new contracts, while also meeting our climate commitments. These actions include improving the predictability of the future supplies of low carbon fuels, and ensuring the UK’s trade policy supports the competitiveness of UK businesses as they move to net zero.”

Paul Drummond, Senior Research Fellow at UCL Institute for Sustainable Resources, said: “The government must make sure a clear, long-term policy architecture is in place to encourage investment in increasingly subsidy-free renewables and grid interconnection, and effective and efficient markets in electricity trade and system balancing.”