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UK industrial emissions plan to create CCUS, hydrogen customers
The UK government appears ready to try to reverse decades of job losses in its once-prominent industrial sector by retrofitting it to support carbon capture, utilization, and storage (CCUS) and hydrogen technologies, laying the plans out in an Industrial Decarbonization Strategy announced 17 March.
While the lack of detail in such net-zero-related targets irked environmental groups, the government continues to insist it is putting its best foot forward ahead of the UK's presidency of COP26, the United Nations' climate conference convening Paris Agreement parties, set to take place in November in Glasgow, Scotland.
To reach its 2050 emissions goal, the UK has now turned its focus on the global pain point of industrial emissions. Its strategy plans to push industry to make ever-steeper cuts to emissions -- about 66% by 2035 and 90% by 2050 -- in an effort to see lower-carbon fuels meet 40% of UK industry's total energy demand by 2030. It also wants industrial clusters to capture 3 million mt of carbon dioxide annually using CCUS, although it didn't say whether this was related to the production of hydrogen or simply fossil fuel combustion.
To do this, the UK government plans to transform five existing industrial clusters into net-zero or lower-carbon hubs. While it has yet to name the clusters, the government awarded £171 million ($236 million) in CCUS and hydrogen design studies to nine green technology projects in Scotland, Merseyside, the Humber, Teesside, and South Wales.
The scattering of the phrase "Green Industrial Revolution" across the strategy document hints at a revival of the 19th century's industrial revolution in which steel and coal were key.
Change may be welcome in the UK's historic steel sector heartlands of Wales and Yorkshire as well as oil and natural gas sector hubs around Scotland, as these sectors have been in decline. The latest illustration is the current debt crisis at Liberty Steel, one year after Chinese Jingye Group bought British Steel.
The strategy aims to provide "certainty" for industry and investors, perhaps taking the view that this could persuade industrial supply chains to relocate to the UK.
The government expects the entire industrial sector to swap its use of fossil fuels, largely natural gas, for lower-carbon alternatives such as hydrogen, electricity, and bioenergy, but will allow the use of fossil fuels where they have carbon capture attached. By 2050, it wants the country's industrial sector to use "almost no fossil fuels unless with capture."
Prime Minister Boris Johnson and the government are spending heavily on industrial hubs, seeking "at least four low carbon clusters by 2030 and at least one net-zero cluster by 2040." A £1 billion ($1.4 billion) pot called the CCUS Infrastructure Fund will initially allow the government to outfit two industrial clusters with infrastructure for capturing, transporting, and storing carbon dioxide by the mid-2020s, and two more clusters will follow by the end of the decade.
This year, the government will draw up the details of the CCUS funding mechanism it plans to implement by 2022. It has proposed Contracts for Difference (CfD), reflecting success with using CfDs to grow the country's offshore wind sector, for now the largest in the world. The CCUS scheme will subsidize operation, transportation, and storage for first-of-a-kind installations. A negotiated price would come first, and a market-based price later.
Planned fossil fuel generation and CCUS subsidies may be a jumping-off point for another emerging technology: biomass generation and capture or bioenergy CCUS (BECCUS). During 2021, the government will also set out a plan to defeat barriers to electrification and BECCUS technologies.
BECCS not only generates electricity, but it is able to produce negative emissions, the CEO of the research nonprofit Resources for the Future Richard Newell told audiences at CERAWeek by IHS Markit earlier in March. BECCS in addition to forestry projects will be used to offset the UK's remaining industrial emissions (about 6 million mt of carbon dioxide equivalent), said the government in the strategy.
It appears a hydrogen subsidy equivalent is still far off. The government said it has a long list of ways to overcome the cost gap between natural gas and hydrogen that it calls business models. The government plans to consult on hydrogen cost business models in the second quarter of 2021 and reveal its chosen tactic in 2022. It will also explain more details in the Hydrogen Strategy promised this year under the 10 Point Plan.
A £240 million ($331 million) Net Zero Hydrogen Fund, also announced in the 10 Point Plan, will support private investment in early low-carbon hydrogen production projects. This looks to be the other half of its £139 million ($192 million) grant scheme announced in 2020, aiming to encourage industrial fuel switching from natural gas to hydrogen.
Fuel combustion is the largest emissions source in manufacturing, and industry produces 16% of national emissions. In the UK, the industrial sector consumes mostly electricity and natural gas, and its emissions would drop if hydrogen was used in place of natural gas. It could drop 71% if blue hydrogen is used or 91% if green hydrogen was used, according to 2018 report by UK think tank Policy Exchange.
The government justifies its overall industrial pivot to CCUS and hydrogen by saying the technologies are "robust" in the face of changes to industrial demand, technical challenges, and fuel prices. But in a conflicting statement about carbon pricing, the government noted that risks for low-carbon investors remain high.
Initially, most low-carbon hydrogen is expected to be sourced from natural gas because the production technology is currently cheaper. "Which option industries take to decarbonize will depend on a real mix of factors. There's a lot of concern over the environmental integrity of bioenergy, whilst hydrogen must be produced in a genuinely low-carbon way. Hydrogen electrolyzer costs are falling fast so producing hydrogen with renewable or nuclear electricity is one way of doing that, but in the near term, hydrogen with gas and CCS is possibly going to remain cheaper for the next decade or so," Ajay Gambhir, a senior research fellow with Imperial College London Grantham Institute for Climate Change and the Environment, told IHS Markit.
This is another source of possible risk for the UK strategy, as prices for natural gas, the primary source of that initial low-carbon hydrogen, nearly tripled between the first quarter of this year and the last, according to IHS Market commodity data.
The strategy's emphasis on subsidies has been welcomed by industry. The CEO of manufacturing trade body Make UK, Stephen Phipson, said: "Britain's big corporations have large ring-fenced budgets for green initiatives, but our smaller firms will need support to make sure they are able to make the changes necessary to ensure the UK meets its carbon targets and that they can benefit from the dramatic changes to the way industry will work in the coming years."
Carbon price leverage
Raising the price of pollution is another way the UK will encourage its industry to switch fuels. The UK plans to re-design the existing UK Emissions Trading Scheme (ETS) covering industry, which replaced the EU ETS in January, under which industrial actors must buy allowances for certain emissions. It will create a cap on emissions, which will gradually tighten in order to better align it with the country's net-zero aims as well as reviewing the allocation of free allowances that make certain industrial actors exempt.
The government is taking stock of its own contribution to emissions, through tweaks to policy for trade deals, planning, standards and labeling for products, and public procurement. The strategy includes plans to create an approach to trade that mitigates carbon leakage, the offshoring of emissions that could increase a company's emissions overall. It is considering issuing import fees on goods produced in countries with lesser carbon pricing policies. It will also have to deal with the EU's own proposed version of carbon import tariffs, the Carbon Border Adjustment Mechanism, in view of their shared goals.
Achieving those trade aims will also involve working through forums such as the G7, G20, Office for Economic Cooperation and Development, and United Nations Environment Programme, it said. The UK plans to, for example, use COP26 and its G7 presidency to "create a coalition of countries committed to shared approaches to developing the market for low carbon products" by 2030. The UK also plans to seek international coalitions for green public procurement at the same time as it will capitalize on export opportunities for low-carbon products, the government said.
Norway likewise has recently announced plans to seek export opportunities for its own CCUS and hydrogen industries.
Hubs part of strategy
The UK is raising the bar for an industrial sector that already had made progress on emissions. Industrial emissions in the UK have halved since the 1990s. This is due to environmental policies, fiscal policies, as well as increasing volumes of embedded generation, and lower energy-intensive industry activity, according to the Policy Exchange report. The 2008 financial crisis also hastened a decline in industrial gas consumption, although it still remains important for both metal and chemicals producers, according to Oxford Institute for Energy Studies.
Industrial emitters have followed best practices to limit air emissions under the EU's Industrial Emissions Directive (IED) since 2013, which the UK has adopted post-Brexit. Greener industrial heating has benefitted from biomass subsidies under the Renewable Heat Incentive (RHI). The UK has already offered industry tens of millions of pounds in grants for technologies like industrial heat recovery and CCUS.
But the UK's "piecemeal" industrial emissions policy lacked an overarching strategy, said the government's advisory body, the Climate Change Committee (CCC). It may be one reason why the industrial decarbonization strategy is now targeting the UK's industrial clusters, such as chemicals manufacturing on Teesside, which also produces 50% of the UK's hydrogen, a key component of ammonia production.
These clusters show the highest levels of carbon dioxide emissions in a national heat map created by consultancy Element Energy. More than half of UK industrial emissions come from refineries, chemicals, construction, iron, steel and cement, and lime manufacturing. Most of the country's industrial emissions were in regional clusters, where iron and steel industries made up nearly a third of emissions, according to the strategy.
Resolution on steel
The steel sector, which is responsible for 7-9% of global emissions, is challenging to decarbonize because coal is often used in three parts of the steelmaking process: as an energy source for furnaces, as a reducing agent for iron ore, and as a source of carbon alloys.
Hydrogen might someday be used for some of these processes instead. European steelmakers like Sweden's SSAB and Luxembourg's ArcelorMittal have announced trials of steel production with electric arc furnaces using hydrogen.
The UK industrial decarbonization strategy plans to set steel producer targets, alongside both the industry and the CCC, so that ore-based steelmaking reaches near-zero emissions by 2035.
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