07 October 2022 - Stakeholder national workshops

Industrial decarbonisation in the EU and the UK: a stakeholder workshop in London

On October 7, 2022, the PARIS REINFORCE project hosted a hybrid stakeholder workshop at the premises of the Grantham Institute Imperial College London with some participants joining via Zoom.

The goal was to discuss and refine the results from the modelling and case study work on low-carbon pathways for the UK and the EU, together with stakeholders from the UK public and private sector, as well as academia.

We also aimed to identify bottlenecks hampering the decarbonisation pathways and to co-create solutions for a transformative policy mix that could overcome those bottlenecks, with a particular focus on energy-intensive industries.

The workshop began with a brief introduction to the overall aims and objectives of the PARIS REINFORCE project, from Dr. Alexandros Nikas joining from the coordinating side (National Technical University of Athens). Daniel Mayer and Conall Heussaff (Bruegel) followed up with a brief introduction of the project's stakeholder engagement strategy, its purpose and relevance to the research process, laying out how the project seeks policy relevance through the structured involvement of stakeholders at each step, from the initial scoping of research questions to scenario building, and to the discussion and dissemination of results. They also explained to the participants the stage of the engagement plan at its current point, and how their input would be taken into account in project results as a consequence of their participation.

Following this, Dr. Ajay Gambhir (Imperial College London, Grantham Institute) and Baptiste Boitier (SEURECO) provided an overview on key aspects of industrial energy system transitions in the UK and the EU emerging from both literature and the macro-economic modelling carried out in the project. In the Q&A session, some clarifications were discussed, including on the solution of the models used, the tech constraints on hydrogen in the modelling framework, the role of natural gas in the analysis as well as the limited policy context resolution at the national level, and the model assumptions regarding industrial growth and production.

Dr Jakob Wachsmuth (Fraunhofer ISI) complemented the modelling overview with a zoom-in on the sectoral analysis and the implications of mitigation pathways for energy-intensive industries (EIIs). He concluded with a list of tentatively identified bottlenecks to decarbonisation of EEIs in the UK.

On the modelling side of things, follow-up discussions tackled the sectoral use of CCS (lime and cement), the scenario setup on electricity vs. hydrogen, the role of biomass (which, in the UK, is currently all waste) in model projections of the current policy context as well as of a net-zero-compliant pathway, the distinction between assumptions and optimisation results, asset age and turnover in models, necessary grid infrastructure upgrades to support decarbonisation, and issues of network utilisation.

All presentations can be found here.

A lively discussion emerged also around the bottlenecks, following the project’s socio-technical analysis presentation. Issues raised included:

  • Knowledge and understanding of the financial services sector, particularly in the light of investment cycles
  • Price at which CCS and hydrogen will eventually be available to industry, as well as uncertainty over electricity prices
  • Externalities to consider among investment prospects (and the importance of risk/cost analysis to help direct capital flows)
  • Near-term investment decisions lock-into 2050 actions, in both the EU and the UK
  • The need for a multi-national approach—with the UK risking ending up on the wrong side of the carbon border adjustment mechanism (CBAM) in the EU
  • The value in defining blue and green hydrogen, coming from different sources, with a focus on feasibility, mechanisms triggering cost falls, CCS costs
  • Re-thinking the energy/electricity market to fully reflect falling cost of renewables
  • The assumption that supply will meet demand in the UK, with stakeholders particularly noting the lack of demand-pull policy in the country for industrial decarbonisation and the existence of industrial clusters where resource (e.g., heat) sharing is possible—which is typically not reflected in the models
  • Public acceptance of technologies and processes as well as ISO/standards to meet the demands, and acceptance of other associated aspects (e.g., powerlines) acknowledging that public engagement takes time
  • Consistency of net-zero policy with economic goals and the need for levelling up and for a just transition agenda, versus implications of climate inertia for growth
  • Production capacity and skills, with a key question revolving around the possibility that resources and skills availability in the UK render it challenging to decarbonise, although the sector was argued to be very diverse, giving rise to new sunrise manufacturing industries
  • Lead-in times for site appraisal, building infrastructure, including regulation and permitting

In the subsequent interactive session of the workshop participants added several bottlenecks and suggested modifications to some as illustrated in the slide below.

Final bottlenecks of PARIS REINFORCE UK workshop in London, October 2022

Through an online polling, participants then assessed the importance of the resulting 38 bottlenecks for the decarbonisation of UK industry (see voting results here). Based on this assessment three breakout groups were formed around the most important bottlenecks. Each group discussed what the main aspects of each bottleneck are and what strategies can be employed to overcome these bottlenecks.

In the first breakout room (which was held online, with the virtual participants), on Infrastructure Expansion, several aspects regarding the associated bottlenecks were raised, including the cost-effectiveness of technologies, the fact that investments carry higher risks from a finance perspective, the lack of perfect foresight on the optimal industrial decarbonisation route, the lack of cross-sectoral coordination (even in case of finetuned monitoring), possible underestimation of electricity demand for the sector, limited access to hydrogen for some regions of different socioeconomic background (with comparisons drawn to Germany), and the possible relocations/shifts the latter may result in within the country. Regarding strategies, clearing uncertainty in the net-zero strategy was explicitly mentioned as a way to secure sectoral investments, while stakeholders also touched upon the role of monopoly and government interventions. The need to send the right market signals in ETS and non-ETS sectors was also brought up, as well as the value in coordinating action (and incentives) at both national and regional level (and in making use of regional advantages, for example in regions with better access to hydrogen). Full cost accounting of fossil fuels against adaptation costs was found as a good signal for deciding on relevant subsidies. Much like regional coordination, industrial clusters were seen positively as a way to overcome discussed bottlenecks, and so was the prospect of using the existing gas infrastructure for hydrogen flows. Finally, technological diversification was also raised, and stakeholders especially discussed the need for industry-level stocktake for timely corrective actions. These discussions especially highlighted the value in a hybrid policy approach to design the hydrogen infrastructure strategy, by consulting regional stakeholders to get a better overview of supply and demand needs, by exploiting existing networks/clusters, by providing incentives for private actors to invest. They also highlighted the need for clear policy-to-market signals on the direction of the net-zero policy, towards fostering more trust and confidence among investors, as well as the value of regional cooperation and existing infrastructure

A second breakout room discussed bottlenecks associated with financing, investment cycles, and energy prices. Stakeholders pointed out that there exists no financial structure to recognise net zero deals, while investors tend to avoid deals with no track-record. A key concern lies in the size of an investment: internal investments from balance sheet are easier, but anything requiring raising new capital is much harder, given the lack of track record and of information. Essentially, this is a question of how to make new investments look “boring” and reliable (easy to understand) for investors and thereby bankable. Overcoming this barrier and unlocking the much-needed investments requires simplicity and certainty in policy support and an intense discussion between actors from climate policy and the financial sector. One element to create stable investment models can be found in standards for financial investment, such as CBI certification. For some cases, subsidies are critical to reduce uncertainty. They are also much more effective at providing confidence in new investments than relief / avoidance of UK ETS costs. A lot of this means getting capital costs down, before removing any operational cost volatility created by fluctuating carbon and electricity prices. Then companies will need to ask who is going to buy their product if selling at a premium to current products (e.g., green ammonia versus current ammonia). Strong demand-pull policies were highlighted in this room too, towards creating certainty. Contracts for Difference were found favourable (e.g., for green ammonia). Introducing longer-term incentives, such as Feed in Tariffs for renewables, as well as public procurement measures, such as the “Breakthrough Agenda”, can also play a crucial role. Infrastructure for tomorrow is difficult to factor in, when investors/businesses must invest now. Manufacturing sites constantly ask, for instance, if new H2 infrastructure is coming their way, but there is no certainty around that yet. And they are not prepared to pay a premium for H2-based processes if there is no guarantee this infrastructure is coming, so there is a risk of losing that window of opportunity. Also, a key infrastructure question remains around how to get CO2 from capture site to storage site. Certainty is also key in terms of electricity prices, especially in the current situation, which highlights the need for electricity market reforms. Firms constantly wonder not just how to continue their operations, but actually whether to keep sites open or move somewhere else with better incentives and more certainty. A classic example is that of carbon leakage consideration; the example of an ammonia plant going to US, where incentives around CCUS (Q45 tax credit) are strong, was mentioned. Also, companies within track II clusters (e.g., in Scotland) face uncertainty about the planed timeline for support and wonder whether to continue their decarbonisation initiatives. Finally, in terms of leakage as well as product demand, multilateral initiatives that may even lead up to a global buy in were found promising among participants.

The third breakout room focused on skills and upscaling of technologies. With respect to upscaling of decarbonisation technologies, stakeholders considered it vital that there be a long-term industrial strategy and long-term government investment cycles to provide a stable environment for investments in innovative technologies and the required skilling. To achieve this, it was deemed necessary to build cross-party consensus through various stakeholder interactions. The lack of UK manufacturing capability for decarbonisation technologies and the dependence on interactions of/with global supply chains was considered an important bottleneck for successful upscaling of technologies. In this regard, participants mentioned the need to balance domestic production capacities with importing decarbonisation technologies by securing international supply while building national capacities. To achieve this, it was suggested that public support to highly innovative technologies (TRL 4) is key, via establishing national research centres, to improve international cooperation with selected EU Member States and non-EU countries, and to secure long-term local access to vital raw materials and energy. With respect to the required skills and engineering expertise, stakeholders expressed a growing demand for technical expertise both in the UK and worldwide. In turn, they perceived a lack of suitable technical skilling in the UK due to a lack of interest by both firms and workers. To overcome this bottleneck, it was considered important to identify skill needs, to improve cooperation between SMEs and universities, to give value to technical trainings and improve their quality, to learn from other countries’ best practices, and to strengthen industrial councils on skilling. Broader notes revolved around long-term government investment cycles (as 1-year cycles do not seem to work), international collaboration on technology development including sorting out UK access to flagship research programmes such as Horizon Europe, international cooperation beyond (and below) the EU level, ensuring secure long-term local access to vital raw materials and energy, effective future skill needs identification and prioritisation of technical training in firms to inter alia cultivate domestic expertise and availability, improving cooperation between SMEs and universities, as well as adopting best practices from abroad.

In the post-breakout session, final comments included the importance of creating long-term certainty as well as of considering the costs of business-as-usual when making cases of decarbonisation costs.