Where is the Industrial Decarbonisation Strategy?

CIA urges the Government to update its overdue Industrial Decarbonisation Strategy to reverse UK industrial decline. We are calling for competitive electricity prices, investible hydrogen and CCUS frameworks, a pragmatic approach to biomass, effective carbon-leakage mitigation, demand side measures, and renewed public funding to unlock manufacturing investment, growth and decarbonisation.

In March 2021 the UK Government published its landmark Industrial Decarbonisation Strategy, setting out how industry can decarbonise in line with net zero while remaining competitive and without pushing emissions abroad. With the Strategy, the government wanted to provide a clear signal to industry, setting out how it expects industrial decarbonisation will happen, and the role government will take in supporting and enabling this transition.

The Strategy committed government to improving investor confidence and providing the certainty businesses needed to begin their journey to net zero. It also committed the government to a review of its implementation every five years. Yet, March 2026 has come and gone with no sign of a review. At a time of uncompetitive energy prices and uncommercial pathways to low carbon manufacturing, we are calling for an ambitious update to the Strategy now, as a reaffirmed statement of intent and as a blueprint for the UK’s reindustrialisation.

A Strategy for Reindustrialisation and Decarbonisation

The chemical sector is one of the UK’s largest exporters of manufactured goods. With annual exports of £60bn we employ 140,000 people in regions of the country in need of jobs and investment. We form the root of all manufacturing supply chains - 96% of manufactured goods depend on chemical sector input. The decarbonisation of our industry would ensure new clean technologies can be made here, supported by innovative, resilient and low carbon supply chains.

The UK chemical sector has already reduced its scope 1 emissions 90% since 1990. Our remaining emissions relate primarily to the use of natural gas for heat, which is needed to break molecular bonds and drive chemical reactions. This link between heat and chemistry means that the chemical industry will always need energy, so how that energy is generated and at what cost is of fundamental importance to when and where industrial decarbonisation will take place.

CIA is calling for action in seven policy areas, to reverse the UK’s industrial decline and establish the conditions for manufacturers to invest, to lower their emissions and to grow their businesses.

Electricity

Hydrogen

Biomass

Carbon capture, use and storage

Carbon pricing

Demand side measures

Public funding

Electricity

The UK chemical sector uses natural gas for heat because it is widely available and cost efficient – UK electricity prices are five times higher than gas prices. Most sites in our sector require low temperature heat which could technically be electrified but the cost of electricity is a significant barrier. Switching to an electrical alternative, at current prices, would increase a manufacturer’s costs and leave them at a competitive disadvantage.

Moreover, chemical businesses have the ability to invest globally and prioritise investment where energy is cheap. UK industrial electricity costs are six times higher than China, four times higher than the US, and double those in France. Even compared with high‑cost European peers, UK electricity is 70–75% more expensive than Germany and Italy. In fact, the UK is ranked last in the IEA for industrial electricity price and last in the G7.

We welcome support through the existing British Industry Supercharger (BIS) and British Industry Competitiveness (BIC) schemes, but these only help some businesses and do not provide the level of discount required to drive electrification. Moreover, 90% of business energy consumption is from businesses that have seen no support at all on their policy costs. These 90% must absorb the cost that is removed from those eligible for the BIS and BIC schemes.

In 2023, a Government call for evidence on Enabling industrial electrification, concluded targeted intervention is needed to address barriers to electrification. Subsequently, the Industrial Strategy 2025 put tackling high industrial electricity costs, and reducing the timeline for new grid connection, as central to growth and the competitiveness of energy intensive sectors.

The Climate Change Committee (CCC)’s Seventh Carbon Budget says 60% of industrial energy demand could be met with electricity. However, they make clear that electricity prices, relative to international competitors, will affect the competitiveness of UK industry and that a supportive policy environment is required to keep energy-intensive manufacturers competitive and avoid the risk that they leave the UK. The CCC reinforce this in their 2026 progress report to Parliament.

The emission intensity of our electricity supply decreased 80% in the 20 years between 2005 and 2025, but the share of our total energy demand provided by electricity has remained at 20%. As long as British manufacturers are unable to electrify, they are unable to access the emission savings they pay for through their electricity bills. Added to this, the price of electricity will go up further if manufacturers do not electrify, as the cost of grid development is borne by fewer users.

Action on electricity

CIA urge the government to act to lower UK industrial electricity prices for all manufacturers. In doing so they would establish the conditions to electrify our existing industry and to grow clean manufacturing in the UK. Action could take the form of market reform, the removal of policy and network cost from bills, or a targeted discount to help sites electrify.

Industrial policy must also better incentivise electrification, as set out in CIA’s recommendations for changes to the Climate Change Agreements (CCA) scheme and the UK Emissions Trading Scheme (ETS). Grid connection processes must better prioritise industrial demand and support for industrial flexibility policy must be designed around the realities of manufacturing.

The payback for action is significant, as is the cost of inaction. Between 2019 and 2024, the UK’s industrial electricity prices climbed from tenth highest in Europe to the highest. The output of the UK’s energy-intensive industries fell 8% over this period, while other industries grew 6%. Had energy‑intensive industries kept pace with other sectors, UK GDP would have been £30bn higher in 2025. Without action, we risk losing more industrial capacity and an estimated £85bn in output.

Conversely, CBI suggest removing key policy costs and taxes from business electricity bills could generate more than £130bn of additional economic output by 2050, while also boosting private investment and tax revenues. Going further, PwC project that bringing UK electricity prices close to G7 levels could unlock up to £250bn in additional economic output over the next decade.

Hydrogen

The chemical sector sees hydrogen as a fuel and a feedstock. As a fuel, it has the potential to decarbonise upstream, high heat processes. These processes form the foundation of chemical value chains and sit within the UK’s industrial clusters, where legacy oil and gas infrastructure make hydrogen development more economic. Hydrogen can also be used as a feedstock to make low carbon chemicals and fuels like ammonia, methanol and sustainable aviation fuel.

Yet in both Track-1 clusters, CCUS-enabled hydrogen projects are struggling. In 2025, £500mn was announced to support one regional hydrogen network, putting the HyNet and East Coast Clusters in competition for funding. The viability of hydrogen projects in both clusters depends on access to a hydrogen network. Whichever cluster is chosen, the other will face an uphill battle to maintain investor interest, as planning consents expire and staff and contractors move on.

The ‘business models’ underpinning the hydrogen value chain also pose problems. Their development has been slow, with drawn-out competition timelines leading to investor uncertainty and project delays. Even now, industry awaits a revised Hydrogen Strategy, CCUS Network Strategy, and updates to the Hydrogen T&S Business Model. Together these will set out the government’s selection process and timeline.

Then, when it comes to actually using hydrogen, there is no support for industry to undertake feasibility studies or trials, since the Industrial Energy Transformation Fund (IETF) was axed, last year. Meanwhile in the EU, industry has access to vast resources for financing industrial decarbonisation investment under the Innovation Fund and Industrial Decarbonisation Bank.

Action on hydrogen

The UK already has much of the groundwork needed to get hydrogen investment flowing. Now we need clear direction and stability on hydrogen policy, including investible business models for hydrogen production and distribution, a clear process for connections to hydrogen networks, and capital grants for industrial off-takers, to help the business case for fuel-switching.

The government should also support the development of all clusters based on a readiness assessment rather than the current sequencing approach. There are significant cluster-related decarbonisation opportunities across the UK. All of these must be prioritised to avoid picking regional winners and losers, and to progress the energy transition at the pace and scale required.

With government’s support, businesses are ready to invest to position the UK as a hub for new, low carbon industries, delivering jobs for decades to come. The 2021 Hydrogen Strategy committed us to 5GW of clean hydrogen production by 2030, to create 9,000 jobs and unlock £900mn of GVA by 2030. Yet without action now, we risk losing out to competitors, leaving us dependent on imports for the chemicals and fuels that underpin a clean economy.

Biomass

Biomethane offers a homegrown alternative to imported natural gas, with a lifecycle carbon footprint that is 70% lower. When combined with carbon capture, use of biomethane can even be carbon negative, actively removing carbon dioxide from the atmosphere. Critically, biomethane could be made available to industry now, through a small tweak to the UK ETS, in line with changes that have already been made to the EU ETS.

In both the UK and EU ETS, the carbon emission factor for the combustion of biomethane is zero. EU manufacturers are permitted to apply this factor to biomethane taken from a mixed gas network, where its injection and removal are evidenced through certification. This provides EU manufacturers with an immediate opportunity to reduce emissions and allows biomethane producers to pass through their product’s green premium to the consumer.

In contrast, manufacturers in the UK ETS cannot benefit from the increasing proportion of green gas on the grid, even as they subsidise the growing cost of biomethane production through their gas bill. This puts UK manufacturers at a competitive disadvantage and hinders emission reduction. GB has over 11TWh of biomethane generation capacity from 130 anaerobic digestion plants, more than enough to cover the 10TWh of natural gas our chemical sector uses.

Action on biomass

The UK launched a call for evidence on a Future policy framework for biomethane production in 2024. The government should publish a response to that call, committing to a more pragmatic approach to biomethane within the UK ETS. By following the EU, the UK could establish a market-based demand for biomethane, reducing the need for public subsidy and allowing UK ETS operators to immediately reduce their emission footprint. Such a move would boost UK industrial competitiveness and liberate public and private finance to invest in growth and decarbonisation.

Alongside changes to the UK ETS, the CCA scheme must be amended to incentivise heat and electricity generation from biomass (including biomethane). In that scheme, electricity generated at an onsite CHP is treated the same as electricity from the grid: a UK-wide grid emission factor and transmission loss factor are applied. Encouraging sites to generate their own energy from biomass would unlock large energy and emission savings and help balance renewable intermittency by making new sources of clean, responsive power available to the grid.

Carbon capture, use and storage

The UK Government recognises the role of carbon capture, use and storage (CCUS) in securing growth, achieving our climate goals and transitioning to a low-carbon economy. To that end, the government committed to supporting the development and deployment of CCUS in our industrial clusters, through structured programmes and investments.

The UK has seven major industrial clusters which produce 50% of UK industrial emissions. The deployment of CCUS infrastructure in the clusters allows for high-impact emission reduction. As well as capturing combustion emissions, CCUS can also capture process emissions that result from chemical reactions that are unavoidable in some processes, even after fuel-switching.

CCUS is also a key enabler of circularity for the chemical sector. Captured carbon could be a circular source of feedstock, displacing fossil carbon currently used in the production of organic chemicals. By simultaneously facilitating CCUS-enabled hydrogen production, the government would also be establishing a supply of low carbon hydrogen feedstock for chemical production.

The UK has made progress on CCUS but barriers remain. High energy prices mean the UK is not a strong candidate for industrial investment and CCUS adds cost on top, so public support is required to close the cost gap. Yet, the design of the industrial CCUS business model was considered unviable by our ethylene and ammonia plants, sites with substantial process emissions that should be a natural fit for CCUS. Other challenges relate to circularity, where UK policy incentivises the long-term storage of carbon over its reuse in new chemicals and fuels.

Action on CCUS

Businesses are ready to invest, alongside government, to position the UK as a hub for new, low carbon industries, delivering jobs for decades to come. But more needs to be done to expedite CCUS deployment, to make sure the UK does not miss out on clean industrial growth.

Critically, we need an industrial CCUS business model that is fit for purpose. We also need clarity on long-term funding and process. In 2024, £22bn was announced for the Track-1 clusters, over 25 years, but no plan has emerged on how and when the money will be spent. The government has also named the Track-2 clusters (Acorn and Viking) in line for CCUS support, and promised a final investment decision (FID) this Parliamentary term for each. To maintain investor confidence, we need to see an FID for both Track-2 clusters, as early as possible.

CCUS is essential to achieving both a net zero and circular economy, with significant growth opportunities for the UK. A competitive CCUS network could support well paid, highly-skilled jobs across the UK. Department of Energy Security and Net Zero analysis shows CCUS has the potential to generate £4-5bn GVA per year and support 50,000 jobs in the 2030s.

Carbon pricing

On top of internationally high gas and electricity prices, British manufacturers face a high carbon price. This high carbon price further increases the cost of natural gas, squeezing the competitiveness of UK assets and deterring new investment by lowering site revenue and soaking up available capital. The high carbon price also drives up the cost of electricity, simultaneously reducing competitiveness and the business case for electrification.

A high carbon price and inability to lower emissions are accelerating the closure of UK chemical sites, marked by a significant decrease in facilities producing the building blocks that form the root of the manufacturing supply chain. UK chemical sector emissions decreased 56% between the 2021 and 2025 as a result of site closure and reduced production. These closures comprise a loss of jobs and industrial capability, in regions in need of investment.

Global demand for chemicals is rising but growth is being serviced by countries with low energy and regulatory costs (China, the US, Middle East and Russia), whilst the UK (and Europe) are losing market share. In the UK, our consumption of goods from overseas is increasing, whilst our own industry shutters production. We are offshoring our industrial emissions not reducing them.

Carbon pricing would be effective if industry had an economic means to decarbonise, or if international competitors faced the same carbon price. Our abatement options are currently inaccessible or uncompetitive and global carbon pricing remains out of reach. Policy is needed to lower the cost of electricity, hydrogen, biomass and CCUS to help manufacturers decarbonise. In the meantime, a unilateral carbon price requires robust carbon leakage mitigation, in the form of a well-designed carbon border adjustment mechanism or an effective free allocation regime.

Counterproductively, the UK ETS also inflates electricity prices by adding an indirect carbon cost to the price of electricity. The UK ETS puts a carbon cost on gas-fired power stations that can pass-through the cost to their customers. UK manufacturers thereby pay for emissions in the power sector over which they have no control, at an estimated cost to our sector of >£300mn per year or £21/MWh of electricity used.

Action on carbon pricing

CIA urges the government to investigate the emission reductions recorded within the scheme to-date, at a sector level, to re-assess the application of the scheme to all industrial sectors. The test is whether it has encouraged and allowed manufacturers to switch away from the use of natural gas for heat, and in which sectors this has been successful. If the UK ETS is not delivering for a given sector the reasons must be found out, and other approaches considered.

Reaching net zero emissions is critical. Supporting the decarbonisation of industry at home would set an example for others to follow whilst retaining UK jobs, manufacturing capability and revenue for the Exchequer. The alternative is the continued offshoring of production and importing of embedded emissions, leaving us less resilient without any benefit to the climate.

Demand side measures

Establishing a market for low carbon chemicals is key to helping UK industry transition to a sustainable future. Today, manufacturers and buyers find it difficult to exchange useful information on the embodied emissions in products. Even where lower carbon 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.

Improved information on embodied emissions could help the business case for low carbon technologies in the chemical sector, but only where it allows the green premium to be passed through to the customer. Our members’ experience suggests the willingness to pay more for green products varies significantly. For many products policy will be needed to overcome the price gap.

Action on demand side measures

High energy prices mean complementary support is needed to attract investment in clean technology in the UK. To ensure the UK benefits from a growing market for low carbon goods, CIA recommends: 1) a replacement for the IETF scheme; 2) reduced VAT for low carbon products; 3) tax breaks for B2B sales of low carbon products; 4) product carbon footprint requirements for downstream products that can pass through cost more easily (e.g. automotives).

The reward for our economy would be sizeable. The low carbon green chemicals market was valued at £60 billion in 2025 and is expected to reach £100 billion by 2034, growing at a CAGR of 6.5%. However, the success of policies aimed at increasing the UK market depends on appropriate targeting and nuanced policy-making. The government should move carefully and consult fully as it considers intervention.

Public funding

Businesses invest for financial return. Industrial decarbonisation projects in the UK are often less attractive to a multinational business, where competing projects overseas offer greater returns. Until the UK can compete on energy prices, financial incentives to help address the cost associated with adopting green technologies will be critical.

The EU recognise this. There the Commission mandates that auction revenue from the EU ETS is spent on climate and energy policy and is looking to target this funding more explicitly at energy-intensive industries. The EU also offer a €2bn Innovation Fund and are in the process of establishing an Industrial Decarbonisation Bank. The UK ETS has raised £20bn since its inception in 2021 but this revenue goes to the central budget. Only £500mn was made available to UK industry during the same period, through the Industrial Energy Transformation Fund (IETF), and only £200mn was spent.

With the termination of the IETF last year we have lost a key enabler for attracting investment to the UK. The end of the IETF came despite the government’s own analysis revealing the scheme delivered a net benefit to society, with £5.60 of benefit generated for every £1 spent. As a result, energy and emission reduction projects have been put on hold with the risk that some may not now be taken forward.

Action on public funding

We call on the government to announce a new and improved IETF, to unlock frozen investment and secure the momentum needed to rebuild the UK’s industrial heartlands. A robust funding framework that effectively supports industrial decarbonisation, would position the UK as a leader in the global energy transition, helping drive growth in a modern, low-carbon economy.