The Aldersgate Group has called for a more detailed policy framework to drive low carbon investment in industry and published reports from Frontier Economics and University College London (UCL) backing up its call.
The report from UCL on Delivering competitive industrial electricity prices in an era of transition says the UK has significantly higher industrial electricity prices than European competitors. Government should:
• Maintain an efficient framework to accelerate investment in the cheapest forms of mature renewable energy such as onshore wind, accompanied by a predictable, rising carbon price to reduce investor risk.
• Establish an integrated approach to network development, funding, and pricing.
• Support continued growth of interconnection (through Ofgem’s cap-and-floor revenues system) and reduce friction in electricity trade.
• Establish a market for long-term, zero carbon and tradable electricity contracts.
• Investigate options for moving some policy costs from electricity prices to gas prices over time.
• Improve scrutiny and transparency of reported electricity price data.
Launching the reports, the group said heavy industrial sectors will be fundamental to providing low carbon infrastructure, goods and services and can develop new competitive advantages and expand into new markets. But despite “some welcome commitments” in the recent Industrial Decarbonisation Strategy and Hydrogen Strategy, “a more comprehensive and ambitious plan of action is urgently needed to deliver cuts from industrial emissions at the pace and scale demanded by the UK’s net zero target”.
The report form Frontier Economics on Accelerating the decarbonisation of industrial clusters and dispersed sites says government should:
• Provide certainty on the future availability of low carbon hydrogen, biomass, and carbon capture usage and storage (CCUS), by using contracts for differences (CfDs) and government matchmaking.
• Work with Local Enterprise Partnerships, local authorities and devolved governments to design local infrastructure plans to help connect dispersed industries to the infrastructure being deployed in clusters.
• Provide targeted UK ETS free allowances or support through Carbon Border Adjustment Mechanisms (CBAMs) to prevent unintended impacts during the transition.
• Drive greater resource efficiency in industry through changes to regulation and increased accessibility of funding.
• Introduce demand-side policies to grow the markets for low carbon and resource efficient industrial products.
Nick Molho, executive director of the Aldersgate Group, said: “There is strong appetite across heavy industrial sectors to accelerate emission cuts and seize the potential opportunities created by the net zero transition in terms of innovation, new investment and job creation at industrial sites across the country. The government now has a key role to play in supporting industry, by taking firm decisions on infrastructure funding and policy support and by tackling head on the investment barrier stemming from high industrial electricity prices.”
Download both reports here