The UK ETS Authority’s 2024 launched its annual report on the functioning of the carbon market records a near ten per cent reduction in industrial emissions compared with the previous year. While the Authority concludes that the fourth scheme year was again an operational success, the report gives no explanation for where the reduction has come from. Rich Woolley, CIA’s Head of Energy and Climate Change, highlights the urgent need for policies that deliver decarbonisation without deindustrialisation.
Explore this page: High carbon and energy prices driving closures | Considering the UK ETS extension | Creating the right conditions for decarbonisation | Supporting decarbonisations without deindustrialisation.
In our sector, we can point to significant emission reductions since the start of the UK ETS in 2021. Chemical sector emissions have decreased 38 per cent between the 2021 and 2024 reporting years. None of this emission reduction was achieved through switching away from the use of natural gas for heat to electricity, biomass or hydrogen. Rather it was mainly the result of closures and decreased activity levels. These figures do not account for more recent closures in industrial regions much in need of investment.
This reduced production signals a decrease in the UK’s industrial competitiveness, owing to the high cost of energy and climate-related policy. Global demand for chemical products is increasing and declining UK production has been replaced in the global market by production from elsewhere, typically the United States, Middle East, Russia and China. Europe is suffering the same competitiveness issues as the UK.
High carbon and energy prices driving closures
High carbon and energy prices in the UK have driven a spate of closures in the chemical sector. Our greenhouse gas footprint in the UK ETS has reduced 38 per cent since 2021 owing to site closures and reduced production. Extrapolating that trend results in the offshoring of the whole UK sector over the next five years.
Economic alternatives to gas-fired heat generation such as electricity, hydrogen or biomass remain out of reach for energy intensive industry. They are not competitive energy sources or they are not accessible.
Considering the UK ETS extension
The Government set out its intention to continue the UK ETS up until 2050 when it published its long-term pathway in 2023. In February 2025 the UK ETS Authority consulted on extending the scheme beyond Phase I, which is set to end on 31 December 2030. The Authority is minded to legislate for a Phase II of the scheme that would continue the operation of the UK ETS from 1 January 2031.
When considering this extension, Government should first evaluate the emission reductions affected by the scheme at a sector level to establish the case for extending it to all current participants. If it can be shown to be effective at decarbonising and not deindustrialising a sector, then an extension should be pursued.
We are concerned that a business-as-usual approach to extending the UK ETS across manufacturing sectors will continue to shutter the UK’s foundation industries. These industries provide the materials used throughout the manufacturing supply chain and in products across the economy. If we do not make them here, we will import them. Defra figures show that between 1996 and 2022, emissions related to UK production reduced from 407 to 211 million tonnes of CO₂ equivalent, while emissions related to imports increased from 259 to 404 million tonnes.
Creating the right conditions for decarbonisation
Chemical manufacturing processes are energy intensive but need not be emission intensive. Our sites can decarbonise if the right investment conditions are created in the UK, namely access to clean and competitively priced energy together with policy that allows a clean manufacturer to pass through its green premium to the consumer.
The UK should proceed with an extension of the UK ETS if it can be shown that it has been effective in decarbonising industry. The test is whether it has encouraged and permitted manufacturers to switch away from the combustion of natural gas for heat and in which sectors this has been successful. If it is shown that the UK ETS has not delivered for certain sectors then the reasons must be found out and other approaches considered.
Supporting decarbonisation without deindustrialisation
Reaching net zero is of fundamental importance. Supporting the decarbonisation of industry at home would not just set an example to the world, it would also retain UK jobs, manufacturing capability and revenue for the Exchequer. The alternative is the continued offshoring of production with the consequent importing of emissions, which will do nothing to reduce climate change, the stated aim of the UK ETS.
Deindustrialisation is not decarbonisation. The UK ETS must ensure it delivers the latter without driving the former.
