The UK has consistently been a first-mover on climate mitigation measures , showing global leadership through its ambitious targets and action. The UK was the first to set legally binding emissions reductions targets, the first major economy to adopt a Net Zero target, decarbonised its electricity generation faster than any other country, and has developed the world’s largest offshore wind generating fleet. The UK could become a world leader on industrial decarbonisation too if it provide financial support for and adopts supportive policies to deliver Net Zero manufacturing.
The review should take this into account, and Government policies should reflect in its policies, that mitigating climate change requires upfront cost that lowers economic growth somewhat in the short and medium term, but the benefits in terms of avoided cost of adverse climate change far outweigh these upfront costs in the long term. Additionally, unilateral measures have impacted on those businesses that compete internationally, increasing the risk of carbon leakage.
The higher than necessary costs of the Government’s climate change policies together with the way it finances decarbonisation technologies have led to higher industrial electricity prices relative to other countries. This puts energy intensive industries at a significant competitive disadvantage and increases the risk of carbon leakage. Higher energy prices are one of the main challenges and obstacles to the industrial decarbonisation.
There is a risk of carbon leakage with the current approach to carbon pricing and proposed reforms to the UK ETS. The UK ETS is meant to price carbon and provide an incentive to reduce emissions. However, this is not the case in practice for manufacturing industry participating in the scheme Many manufacturers are trade intensive, operate on thin margins, and cannot pass on the cost of carbon t to their customers whilst their competitors abroad do not face similar carbon costs. This puts these industries at a significant competitive disadvantage. The main challenge of carbon pricing is its impact on competitiveness. High UK carbon prices and reduced allocation of free ETS allowances, will increase the risk of carbon leakage and reduce availability of capital to invest in decarbonisation. Decarbonisation should not lead to deindustrialisation.
Security of energy supply is an absolute condition to decarbonise. Without security of energy supply, energy intensive industries are unlikely to have to confidence to make the investment necessary to reach the net zero target.