UK government must do more to avert worrying outlook for UK chemicals sector, think tank warns

TENS of thousands of jobs in the UK chemical sector are at risk due to lagging decarbonisation policies, including a lack of support for industrial electrification, a think tank has warned.

Green Alliance says that 140,000 jobs in the chemicals sector are at longterm risk if industry remains dependent on fossil fuels and policymakers fail to plan for decarbonisation. The sector is responsible for around 19% of the UK’s industrial emissions, is heavily reliant on fossil fuels for energy and feedstocks, but also underpins the production of cleaner technologies including batteries and wind turbines needed for greener growth.

Liam Hardy, senior policy analyst at Green Alliance, said:  "We need a UK chemicals industry, the highly skilled jobs it provides, and the contribution it will make to a greener economy. But it will take deliberate government policy to find a way forward. For example, by requiring a certain amount of carbon in chemicals to come from greener sources through a ‘green carbon mandate’.”

He added that the government’s forthcoming industrial strategy is a key moment for setting out a plan for “a thriving green chemical industry fit for the future.”

Electrification shortfall

While the UK government has pledged £20bn (US$26bn) in funding for carbon capture and storage projects to help reduce industrial emissions, and £240m for switching to hydrogen fuel, Green Alliance warns that other policies essential to a greener chemicals industry are lagging behind. It says the UK government doesn’t adequately support electrification of industry and that the country’s industrial electricity prices are consistently higher than the EU average. In 2022, UK prices were at a 23% premium.

Graeme Cruickshank, chief technology and innovation officer at the Centre for Process Innovation (CPI), said: "The UK chemicals industry has an important role to play in a greener economy, but we need to set it up to succeed. The government can help by prioritising how we use resources critical to the chemicals industry, like hydrogen and biomass, that are in limited supply. The industry will also need to electrify quickly in the coming years, meaning it needs lots of affordable power, so building out the grid must be a priority.”

Green Alliance said that the global market for chemicals and comparatively high operating costs leaves UK chemicals businesses highly exposed. High natural gas prices in the UK saw fertiliser firm CF Industries shut down operations in Ince in 2022 and ceased ammonia production in Billingham in 2023.

Policymakers struggle to understand the chemicals industry

On top of this, the complexity of the chemicals industry means policymakers struggle to understand it and the industry sometimes fails to provide a unified voice. Meanwhile incentives, such as the tax breaks being offered through the US Inflation Reduction Act, mean companies can have their pick of where to invest for greener manufacturing.

David Bott, head of innovation at the Society of Chemical Industry, said: “The UK has a long history of innovation and expertise in chemicals, but the government has never really understood our industry. It’s now under threat from international competitors offering better incentives to pursue a greener future, and better-aligned regulation. We need an industrial strategy that helps steer the UK chemicals industry on to a positive path, directing its attention towards long term risks and opportunities.”  

Among its recommendations, the think tank said the government must produce an industrial strategy, expand the British Industry Supercharger scheme used to incentivise electrification, and overcome skills shortages by increasing funding for lower level apprenticeships and providing support to universities to adhere to higher level apprenticeship regulation.

“There are plenty of opportunities that the government could take advantage of to reduce the industry’s climate impact and enhance the sector’s competitiveness,” the think tank’s study concludes.

The UK’s new Labour government has pledged to re-establish an Industrial Strategy Council to assess the effectiveness of industrial strategy and ensure industrial policy outlives short-term political cycles in order to give industry the long-term confidence to invest in the UK.

Ahead of the UK’s general election, 42 organisations including IChemE, outlined the policy priorities needed for the government to create a resilient and prosperous future including the need to establish a longterm industrial strategy.