The chemical sector is complex, manufacturing tens of thousands of products, and it’s emissions are ‘hard-to-abate’. The success of policy mechanisms that aim to grow the market for low carbon chemicals would depend on appropriate targeting and nuanced policy-making. The UK Government should move carefully and consult fully as it considers intervening in the market for low carbon chemicals.
Establishing a market for low carbon chemicals will be key to supporting the UK industry in its transition to a sustainable future. At the moment, it is difficult for manufacturers and buyers to exchange reliable information on the embodied emissions in products. Even where lower emission products can be identified, purchasing decisions tend to be on the basis of price, as customers are unwilling to bear the higher cost of clean production. For these reasons the Government is consulting on a framework to grow the market for low carbon industrial products.
The CIA recognises that improved information on embodied emissions could help the business case for deploying low carbon technologies in the chemical sector, but only where this allows the ‘green premium’ of clean technologies to be effectively passed through to the customer. This would depend on whether customers are willing to pay more for greener products, the evidence for which is currently lacking.
When it comes to the UK chemical sector in particular, complementary policies to assist UK manufacturers with the deployment of low carbon technologies would also be needed. The UK has high energy and climate-related policy cost that make it an uncompetitive investment location. Parallel Government support to help deploy low carbon technologies, here in the UK, would therefore be critical to ensuring the UK economy benefits from a growing market for low carbon goods. With this in mind, the CIA recommends the following:
1. Reduced VAT rates: VAT reductions should apply to end products that meet Product Carbon Footprint (PCF) requirements. VAT reductions would serve as a direct, immediate, and sizable incentive for the end consumer. While not sufficient on their own to bridge the cost difference with conventional products, they could form one part of a broader package of support measures. To be most effective, the VAT reduction should apply to the end product that makes use of low carbon chemicals (e.g. a vehicle that contains low carbon plastic).
2. Offtake tax breaks: Business-to-business incentives should apply to customers of UK chemical producers, who choose low-carbon chemical products over conventional alternatives. The US Inflation Reduction Act (IRA) demonstrated how tax breaks could be rapidly implemented and play a significant role in stimulating industrial growth.
3. PCF requirements: PCF requirements for end products can provide incentives for chemical manufacturers by stimulating downstream manufacturers to buy low carbon chemicals to fulfil sectoral requirements. The focus of PCF requirements should be on sectors where (1) the chemical content constitutes a substantial share of the final products’ carbon footprint and; (2) sufficiently simple, standard methodologies are available.
4. Other options: Our European Federation, Cefic, is working with chemical companies across Europe to evaluate other options, including: 1) a compliance mechanism whereby companies exceeding PCF requirements are granted tradable certificates which they can sell to other companies; 2) A levy on end products, with fees linked to embodied emissions, that could channel finance toward investment in the chemical sector’s transition.[1]
The chemical sector is complex, manufacturing tens of thousands of products. It’s emissions are ‘hard-to-abate’, which means that the cost of getting the sector to net zero will be higher comparative to elsewhere in the economy. Meanwhile, the UK sector is struggling against a backdrop of uncompetitive investment conditions. The success of policy mechanisms that aim to grow the market for low carbon chemicals would depend on appropriate targeting and nuanced policy-making. The UK Government should move carefully and consult fully as it considers intervening in the market for low carbon chemicals.
[1] Cefic (2025) Priorities on market pull measures for low-carbon and circular products
