The greatest contribution we can make to the reduction of global emissions would be to make the UK a global exporter of competitively priced low-carbon industrial products. But this requires consumption-based targets that consider realities beyond our borders. With the right targets, the UK could become a hub for low carbon industries, underpinning a green growth economy. This would be successful climate change leadership.
The Climate Change Act 2008 establishes targets for UK emission reduction. These targets are ‘territorial’ in nature, meaning they are concerned with greenhouse gases emitted within the UK’s borders, whilst they ignore those resulting from the production of imported goods. UK climate policy evolved within this framework and, as a consequence, aims to increase emission costs for UK firms whilst turning a blind eye to the activities of our overseas competitors.
But the UK cannot solve climate change alone and so far we have largely failed to reduce the emission footprint related to our own consumption of industrial goods. We have measured our success against the wrong indicator - territorial emissions - and the result has been a growing record of carbon leakage. We have become leaders in deindustrialisation, not decarbonisation, setting a poor example for other industrialised economies to follow.
The UK manufacturing sector – which produces goods to be shipped all over the world - faces high climate-related compliance cost whereas our international competitors do not. Global demand for chemicals is rising but this growth is being serviced by countries with low regulatory costs (mainly China), whilst the UK (and EU) are losing market share. Here in the UK, we are consuming an increasing quantity of goods from overseas whilst our domestic industry shutters production and reduces headcount.
High carbon compliance cost would be an effective tool if industry had access to an economic means to decarbonise. Yet all our options, for now, remain inaccessible or unaffordable. Our emissions arise from the generation of heat to drive chemical reactions. Heat could be sourced from electricity, biogas or hydrogen, but these sources are currently under-developed and uncompetitive. Policy is needed to make these technologies widely available at a viable price.
A high carbon compliance cost together with an inability to abate emissions means that the UK’s chemical assets are in decline, marked by a significant decrease in facilities producing the building blocks that form the root of the manufacturing supply chain. The Climate Change Committee’s Seventh Carbon Budget explains that ‘the main cause of the reduction in industry emissions since 1990 is the steep decline in UK production of some of the most emissions-intensive materials’.
These materials are used in products throughout the economy. If we do not make them here then we import them. Defra calculates that, between 1996 and 2022, emissions related to UK production reduced from 407 to 211MTe, while emissions related to imports increased from 259 to 404MTe. In our sector, we can point to a 38% decline in emissions since the start of the UK Emissions Trading Scheme (ETS) in 2021. Frustratingly, none of this emission reduction relates to switching away from the use of natural gas for heat; rather it relates to site closure and reduced production. The ETS figures only take us to the end of 2024 and do not account for a spate of new closures throughout this year, in industrial regions much in need of investment.
Territorial emissions targets are established under the Paris Agreement and would be a robust way to tackle climate change if all parties enacted the same climate policies at the same pace. Because this is not the case, the CIA recommends consumption-based targets as a more effective and complimentary alternative. Regular and transparent scrutiny of the emissions embodied in the goods we consume would better enable us to enact policies that reduce both territorial and imported emissions, without compromising our industrial competitiveness.
The Government has taken a step in this direction with the design of the UK Carbon Border Adjustment Measure and with efforts to create low carbon product standards for industrial sectors, but more needs to be done. Without a fundamental shift towards consumption-based targets we will see the continued offshoring of production, and the importing of embodied emissions over which we have no control. This would diminish UK resilience and do nothing to stop climate change.
Chemical manufacturing is energy intensive but need not be emission intensive. Our sites can decarbonise if we create the right investment conditions for green production here in the UK.
