MARCH 18, 2021
By Paul Homewood
One again we find the media finally waking up to the harsh realities of Net Zero. It’s a pity they did work it out for themselves years ago before we committed ourselves to this nonsense:
Britain’s factories produce 72m tonnes of carbon dioxide a year – 16pc of the UK’s total and a big barrier to hitting the “net zero” target by 2050.
The decarbonisation strategy announced by the Government on Wednesday aims to cut that by two-thirds by 2035.
However, cleaning up the factories and steelworks responsible for huge amounts of CO2 is going to be expensive. The strategy fails to take a stab at just how big the bill will be. That has left industry deeply concerned – particularly as it tries to recover from the economic hit caused by the pandemic.
Despite the £1bn headline figure quoted by the Government to “drive down emissions from industry and public buildings”, it is unclear whether the strategy contains new money.
Instead it details where previously announced funding will be put to work in areas such as eco-friendly heatpumps and insulation in buildings, research into making steel from clean hydrogen and directing business to swap to renewable power and adopt carbon capture technology.
That has got industry worried. “It’s a statement of intent rather than a policy package,” says Chemical Industries Association boss Steve Elliott. “It’s a lot of ambition. The next step would be workable, policy action.”
Apart from the expense of moving to new technologies, there will be other costs. The strategy talks about creating demand for products made in low-carbon ways, and potentially labelling those that are, and this could rack up expenses.
Initially such a system detailing the “carbon intensity” of items would be voluntary, but force companies to delve deep into their supply chains to understand products’ carbon footprint, potentially strangling them in red tape.
New customs controls resulting from Brexit showed business how difficult and expensive such work can be.
MakeUK, the trade body that represents manufacturers, is concerned about the implications. “Manufacturers have lengthy and complex supply chains so capturing carbon footprint data will not be without challenges,” says Verity Davidge, its policy director. “We’re behind net zero but companies are already juggling it with Covid’s impact and managing the new relationship with the EU.”
Steel is the sector most in the firing line. The strategy even singles out the Port Talbot and Scunthorpe steelworks, noting “these two sites alone produced 11m tonnes of CO2 in 2017 – 15pc of total industrial emissions”.
Two years ago the Government announced £250m to help the sector clean up, such as developing hydrogen-powered steel-making instead of traditional blast furnaces, alongside a £140m to boost hydrogen production.
However, this won’t be enough for the sector go green. Chris McDonald, chief executive of the Metals Processing Institute, estimates it would cost between £6bn and £7bn to decarbonise the UK’s steel plants, assuming they were replaced by new facilities. Eurofer says the entire EU and UK steel industry going green by 2050 would push up production costs by between 35pc and 100pc per tonne.
“It will be a huge challenge to fundamentally transform how steel is produced,” says Gareth Stace, director of UK Steel, warning his energy-hungry industry already faces higher costs than rivals in Europe.
Encouraging investment in clean steel in the UK would require solid policy support to ensure there is a market, such as reforming public procurement so domestically made steel was at the front of the queue for major projects in Britain.
Business Secretary Kwasi Kwarteng proudly trumpeted the plans, noting Britain was the “first major economy to put into law” plans to decarbonise, “and the first to take steps to have its own low-carbon industrial sector”.
But going first has risks. Although other countries are likely to follow, until new technology is developed and becomes cost effective, industries may avoid the UK for locations with looser regimes, and consumers may choose cheaper products made using more polluting methods.
The strategy acknowledges what is known as “carbon leakage”. It mentions “funding policies to reduce the cost of decarbonising”, systems to pass costs to consumers, and even border controls if other countries are slower to go green.
Officials are “sensitive” to carbon leakage, says David Reiner, lecturer in technology policy at Cambridge University’s Judge Business School, but says the Government needs to stump up the cash as what is available now is only enough to fund studies. “The funding announced is just a down payment,” he says. “In the not-too-distant future there needs to be confirmation of what is actually on the table.”
But it might not be as bad as it seems, Reiner thinks: “Moving aggressively on heavy industry might have been risky a couple of years ago but as more economies commit to carbon neutrality that makes it more likely others will try to learn from this process.”
What the Government hopes is that decarbonising drives its green industrial revolution, creating 80,000 jobs as industry realises that it has to invest, as soon no country will be allowed to escape tough environmental controls.
“The opportunities from green transition are massive,” says Greg Archer of lobby group Transport & Environment. “Every country is going down the same path, just at different speeds. We can get a competitive advantage by being first and selling our expertise internationally.”
It’s this hope that has turned prime minister Boris Johnson’s and Kwarteng into climate activists. A green industrial revolution may not be just a soundbite, but a business plan.
“It’s pragmatism,” says Roz Bulleid of the Green Alliance. “There’s strong public demand for decarbonisation so there’s a political incentive. Globally, we’re seeing decarbonisation so there’s a business motive too.”
Douglas McWilliams of economic think-tank the CEBR remains unconvinced. “It all makes a massive assumption that a country with just 1pc of the global population will come up with ways to solve these problems,” he says. “It might be more cost effective to let others do that and then nick the technology.”
Unsurprisingly the Green Alliance still prefers La La Land, but it is evident that those who actually understand economics and business are finally beginning to wake up to the dangers. Whatever way you look at it, the bill will be massive and somebody will have to pay.
Take the steel industry for instance. At Port Talbot which is owned by TATA, it has been estimated that reducing emissions, either by converting to hydrogen, bringing in carbon storage or changing to electric arc furnaces would cost at least £2bn in the site itself, plus huge sums on infrastructure elsewhere. Why on earth would TATA want to spend that sort of money on a business that is struggling to make a profit now. The same applies to Scunthorpe, owned by the Chinese.
And it is not just the colossal capital costs, which would be involved in any transition. Decarbonisation will inevitable add to operational costs of industry, putting it at a permanent disadvantage to overseas competitors.
As the article also points out, the problem of carbon leakage will also be highly problematic, and involve crippling bureaucracy in monitoring supply chains.
The report also highlights the extremely naivety of the media up to now, who seem to have assumed that all of this decarbonisation could have been achieved for a billion or two. As this blog has often pointed out, the billion quoted is no more than a bit of seed funding for pilot projects, R&D and the like. In particular, the media still have not woken up to the fact that hydrogen will cost several times as much as conventional energy sources.
There also appears to be wishful thinking that if we jump first, the rest of the world will come and buy our goods because they are “green” – “The opportunities from green transition are massive,” says Greg Archer of lobby group Transport & Environment. “Every country is going down the same path, just at different speeds. We can get a competitive advantage by being first and selling our expertise internationally.”
It is far more likely that our industries will simply migrate elsewhere, where costs are cheaper. Even a carbon import tax will have little effect on that.
More and more, the only justification offered by politicians of all parties revolves around all of these marvellous green jobs about to be created. But who will pay the bill for them?
Let’s finish by looking again at the statement from the guy at CEBR:
It all makes a massive assumption that a country with just 1pc of the global population will come up with ways to solve these problems. It might be more cost effective to let others do that and then nick the technology.”