The role of gas in industry

This is the third in a series of briefings from Energy UK and the Carbon Capture and Storage Association (CCSA), exploring the role of gas in the transition to a Net Zero economy.

This briefing focuses on the role of gas across the UK’s industry. The first briefing in the series focused on the broad role of gas across the entire economy, and the second explored the role of gas in generating electricity. Visit the Fuelling the Future webpage to read the rest of the series.

While gas usage is projected to decrease over the coming years, it remains critical throughout the economy. The UK’s industrial sector, which includes metals and minerals, chemicals, food and drink, paper and pulp, ceramics, glass, refining, and less energy-intensive manufacturing, consumes a fifth (19%) of the UK’s gas demand. Gas is consumed both as a fuel for industrial processes and as a raw material for products, with food and chemicals thelargest users.[1]

The UK’s industrial sector remains the third-highest emitter of greenhouse gases, despite significant reductions. In 2023, emissions decreased by 8.0% (4.6 MtCO₂e) from 2022 levels to 52.8 MtCO₂e, accounting for 14% of the UK’s total emissions, primarily due to reduced fuel consumption in the iron and steel industry.[2] Since 1990, industrial emissions have dropped by 66.3%. However, despite this downward trend, the UK’s industrial sector remains a major source of CO₂ emissions and is vulnerable to volatile gas prices. Decarbonising industry is crucial to meeting Net Zero targets, enhancing energy security, and protecting businesses.

The Carbon Budget Delivery Plan, as set out by the previous Government, aims for a 69% reduction in industrial emissions by 2035 from 2022 levels. Achieving this requires a mix of solutions, including efficiency measures, electrification, fuel switching, and carbon capture, and storage (CCS) for hard-to-decarbonise processes.

The Government and industry have developed policies to deploy and scale technologies needed to decarbonise industrial processes. While good progress has been made, the UK must accelerate its decarbonisation plans to lead the way in clean industrial growth and low-carbon products. This includes finalising revenue support measures designed to incentivise deployment of CCS technology for industrial users who often have no viable alternative to achieve deep decarbonisation.

Known as ‘CCS business models’, these measures enable investors to understand and invest in CCS and clarify future revenue support routes until the UK emissions trading scheme (UK ETS) becomes a sufficiently robust and liquid market. Additionally, the UK needs to develop policy frameworks to support the electrification and decarbonisation of businesses located away from the main industrial clusters with CO₂ transport and storage transportation and storage (T&S) access, known as ‘dispersed sites’.

Figure 1: Net UK territorial greenhouse gas emissions by sector, 2023 (%)
Source: 2023 UK greenhouse gas emissions, provisional figures (DESNZ)

Why is gas important for industry?

Gas continues to play an integral role in industrial processes for the following reasons:

• Gas has a high energy density, making it an efficient fuel for various industrial applications. Its combustion produces significant heat energy which is crucial for processes like heating, drying, and powering machinery.
• Gas infrastructure is well-developed in many regions, ensuring a reliable and consistent supply for industrial users. Additionally, CCS can also be retrofitted to existing industrial plants with less disruption and lower costs compared to completely overhauling operations for electrification.
• Gas provides reliable energy, alongside renewable sources such as solar or wind, crucial for industries with continuous production requirements. Gas-fired systems often serve as backup energy sources in industrial facilities, supplementing or replacing primary energy sources in case of disruptions or failures, ensuring continuity of operations during disruptions or failures. This minimises downtime and prevents significant financial losses or penalties for many industries.

This explains why gas continues to play a significant role in meeting the energy and feedstock needs of industries in the UK and worldwide. The industrial sector is therefore considered to be a ‘hard-to-abate’ sector, and a range of technology options must be considered to reduce its dependency on fossil fuels while allowing industry to continue to play its essential role in society.

Identifying the opportunity: the importance of industrial decarbonisation

By reducing natural gas reliance and carbon emissions in energy-intensive industries, we can futureproof the success and survival of key British sectors such as cement, steel, and manufacturing, which are vital to the UK’s clean industrial growth as well as the energy transition. As these industries decarbonise, they will supply the UK market with low-carbon products and export them to countries that are unable to produce their own. As Figure 2 shows, several industries still rely heavily on gas as a fuel source.

Figure 2: UK industrial demand for gas, 2022
Source: DUKES (note: excludes energy industry use, e.g. powering oil and gas extraction)

Importance for the economy

Industry is crucial to a strong and successful economy, contributing £170 billion to the overall economy.[3] It provides 2.6 million direct jobs and over 5 million jobs across the value chain.[4],[5] These businesses are especially important to regions outside the South East, offering essential employment in the UK’s industrial heartlands like the North West, Yorkshire, Scotland and South Wales.

Reducing industrial natural gas consumption will support the development of low-carbon technologies, boost competitiveness, and promote clean growth. If industries are forced to relocate overseas to access decarbonisation infrastructure, jobs will be lost and industrial regions will be devastated.

Figure 3: Major UK industrial cluster emissions
Source: CCUS Net Zero investment roadmap (DESNZ)

Harnessing the opportunity: the role of industrial clusters and dispersed sites

The UK’s Industrial Decarbonisation Strategy, which sets out actions to accelerate the green transformation in industry, identifies that around half of industrial emissions are concentrated in industrial ‘clusters’, which are groups of co-located, energy-intensive industries.[6]

Chemical, cement, and refinery industries are most prevalent in these clusters, such as in Teesside and the Humber, and the emissions associated with these sectors are produced from a variety of industrial activities. A significant share of emissions arise from industrial production processes to chemically or physically transform materials, known as ‘process emissions’. In these circumstances, electrification will not always eliminate emissions and it will require CCS technology to capture and store the emissions.³

CCS can benefit significantly from economies of scale, so sites that are clustered near an offshore CO₂ storage site can benefit from access to a large-scale CO₂ T&S pipeline network. Decarbonising these clusters is crucial to achieving the Carbon Budget Delivery Plan’s targeted 69% reduction in industrial emissions by 2035. In line with Carbon Budget 6 targets, the previous Government set a target of establishing four CCS clusters by 2030, that can capture and store 20-30Mt of CO₂/yr.

In addition, a parallel strategy to tackle dispersed sites without CO₂ pipeline access is required to enable businesses far from clusters to decarbonise and remain competitive. Whilst technical advances mean that electrification is a technically viable and efficient option for a growing range of industrial activities, for those dispersed sites where electrification is not suitable for all processes, access to other modes of CO₂ transport (such as by rail, road or ship) and adequate hydrogen infrastructure will be needed.

What are the alternatives to unabated gas?

The Government’s emissions reduction target for UK industry will require a major shift in how goods are manufactured and energy is consumed. There is no single solution and a combination of technologies and enabling policies will need to be implemented. While this transformation will take time, bold and ambitious Government decisions can accelerate the shift from unabated gas.

Efficiency measures

Improving efficiency at industrial facilities to reduce gas consumption involves three main strategies:

1. Resource efficiency, which optimises the use of raw materials from production to end-use.
2. Energy efficiency, which maximises input efficiency to reduce energy consumption and lower emissions. Energy efficiency plays a crucial role in the gas transition, and an example of how energy efficiency can reduce dependency on using natural gas for a heat source in industrial processes is by taking waste heat from one plant’s production, and using it as a heat source in a neighbouring plant. This process is particularly suited to industrial clusters where multiple industrial emitters share infrastructure.
3. Stand-alone systems, such as heat pumps, which offer an efficient way of generating lower temperature heat. A growing range of technologies that can store electricity and generate both heat and steam may offer efficient solutions for higher temperatures.

The Government’s £315m Industrial Energy Transformation Fund (IETF), announced in the 2018 Budget and available up until 2027, is designed to help businesses with high energy use to cut their energy bills and carbon emissions through investing in energy efficiency and low-carbon technologies. Reforms to other key policies such as Climate Change Agreements and the Energy Saving Opportunity Scheme are likely to be needed and new policies and support will be needed to enable higher cost measures can be implemented.

Fuel (heat source) switching

Fuel switching refers to the move from high-carbon fuels (such as natural gas) to low-carbon alternatives. Switching industry to lower carbon fuels will be critical for meeting the UK’s legally binding commitment to achieve Net Zero by 2050 and can be done by:

1. Fuel switch and fuel switch-enabling technologies for hydrogen. Hydrogen is best used for some chemical processes that use natural gas as an input but can also provide high-grade heat, such as that needed in industrial ovens for sectors like glass and ceramics.
2. Fuel switch and fuel switch-enabling technologies for electrification will be best used where electrification is the most economical option for fuel switching. This will include low-grade heating, as well as through employing technologies like electric arc furnaces for heavy industry.
3. Fuel switch and fuel switch enabling technologies for biomass, wastes, and other Net Zero compatible fuels. Biomass is favourable at sites where there is a sustainable and sufficient biomass resource.

The Government has allocated up to £55 million through the Net Zero Innovation Portfolio (NZIP) Industrial Fuel Switching Competition to accelerate the commercialisation of innovative clean energy technologies and processes through the 2020s and 2030s across the UK’s industry. Funding is divided across the three categories above to ensure a portfolio of low-carbon solutions are commercialised and adopted.

Carbon Capture and Storage

While all industrial decarbonisation methods are important, CCS has been identified as essential by the Climate Change Committee. CCS is fundamental to decarbonising industry to enable three key pathways:

1. Enabling fuel switching: CCS can be used in capturing the emissions in the production of hydrogen and electricity for use as alternative low-carbon fuels for industrial processes.
2. Capturing residual emissions from industrial processes: capturing the process emissions from industrial facilities where there is still combustion of non-biogenic (fossil) content. Applying CCS to residual industrial emissions is fundamental to decarbonising key processes; without CCS, emissions from current industrial processes cannot be reduced to levels consistent with Net Zero.³
3. Delivering negative emissions: capturing the emissions from industrial facilities which combust biogenic feedstock (such as biomass, which has absorbed CO2 from the atmosphere while growing), can deliver negative emissions as more carbon has been removed from the atmosphere than has been added.

Once the CO₂ has been captured, if not used on site, it is compressed and transported for permanent storage in deep geological formations, such as depleted oil and gas reservoirs.

Industries located close to each other can then share the CO₂ T&S infrastructure. To achieve Net Zero, the UK must scale up CCS in the 2020s and develop a strong, resilient supply chain.

The previous Government set an ambition to deliver 6 MtCO2 per year of industrial CCS by 2030 and 5 GW of CCS enabled hydrogen production capacity.

So far, previous Governments have:

• set an ambition to deliver four CCUS clusters by 2030, capturing and storing 20-30 Mtpa of CO2 in line with Carbon Budget 6 targets.
• progressed two Track-1 Clusters; Hynet (North West) and East Coast Cluster (North East) towards signing Final Investment Decisions in September 2024, delivering the world’s largest industrial clusters.
• selected two Track-2 Clusters Acorn (Scotland) and Viking (Humber) to deploy by 2030.
• committed £20 billion for early deployment of CCUS.
• passed legislation in the Energy Act 2023 to enable revenue funding to flow through the business models.
• developed an Industrial Carbon Capture (ICC) business model, a revenue support agreement ensuring that industrial emitters can recover the costs of CCS investments over the lifetime of the ICC contract (10-15 years).
• developed the low-carbon hydrogen agreement (LCHA), offering price protection and partial volume protection to CCS enabled hydrogen producers.

What needs to happen?

Whilst there are already some policies in place, much more progress is needed to successfully transition British industry away from unabated gas. It is vital that the Government prioritise the following measures so that the UK can fulfil its potential to become a leader in clean industrial growth.

Cooperating with the EU to strengthen the UK’s carbon price

The UK and EU are aiming to develop domestic supply chains and maintain competitiveness in a Net Zero economy and both economies will be able to do that more effectively by working together. The best ways of cooperating with the EU are to:

• Link our Carbon Trading schemes: the UK started its own carbon market when it left the EU. Creating a linked UK-EU carbon market will provide greater stability and liquidity, giving the investors the confidence they need to invest in low-carbon projects. The UK ETS price fell in Spring 2023, and one consequence of linking the UK and EU schemes would be to push up the price of UK allowances, which will further incentivise decarbonisation.
• Coordinating to prevent carbon leakage: separate Carbon Border Adjustment Mechanisms (CBAMs) in the UK and the EU are being implemented to prevent carbon leakage to prevent high-carbon intensity production moving abroad where they may not face the same emissions regulations. Linking the UK and EU ETS will resolve many of the issues, and whilst this is negotiated both sides need to negotiate a bespoke EU-UK CBAM agreement as soon as possible and ahead of the EU’s CBAM implementation date of 1 January 2026.

Clarify routes to market to boost and sustain investment

Only one cement project and no refinery projects progressed to negotiations with Government in the Track-1 Cluster Sequencing process. All of these projects must be successful to build a low-carbon industry. Investors are urgently seeking further clarity on expansion of these clusters, Track-2 clusters and subsequent clusters and projects, amidst increasing opportunities to invest in industrial decarbonisation around the world. To maintain investor confidence, Government must:

• Follow through on existing commitments in a timely way by signing Final Investment Decisions (FIDs) for Track-1 Clusters; HyNet and East Coast Cluster by September 2024.
• Provide clarity on project selection for Track-2 clusters; Acorn and Viking.
• Provide a future revenue support envelope by end of 2024 for Track-2 and the other industrial clusters around the UK.

Access to enabling hydrogen and CO₂ infrastructure

The Government needs to also work with industry and provide certainty for the hydrogen pipeline. It should seek to provide the following.

• A clear vision for hydrogen and CO₂ infrastructure. While policy is integral to drive investment and provide projects with revenue certainty, low-carbon alternatives will not be deployed and scaled up unless there is enabling infrastructure. There needs to be strategic oversight of future access to hydrogen and/or CO₂ infrastructure and alignment of this with decarbonisation targets for the industrial sector to help mitigate the risk of heavy industry migration to locations with fiscal regimes without carbon taxes.
• Tackle delays to the rollout of necessary infrastructure and new projects caused by restrictive and outdated planning guidance.
• Access to shared hydrogen and CO₂ T&S infrastructure across the UK’s industrial regions will attract other industries to the UK to connect to these networks, including low-carbon fuels and products, as well as those wishing to access low-carbon hydrogen. This will unlock significant investment opportunities for the UK’s industrial regions and grow the economy.

Encouraging electrification

While decarbonising industry through some of the means in this briefing, industry and Government need to work together to further electrify where possible.

• Accelerate the deployment of renewable generation: To encourage fuel switching from natural gas to electricity, measures must be taken to accelerate the mass deployment of renewable generation in line with Government targets.
• Pursue market reforms for system operability: It is crucial that the interaction of an increasing supply of renewables is considered alongside reforms to the Balancing Mechanism to allow for the optimal use of low-carbon, flexible options and ensure energy price volatility is kept to a minimum to allow industrial users to forecast and manage costs. New policy mechanisms will also be required to cover the capital costs for conversion and higher running costs (due to policy design and current electricity wholesale prices).
• Address grid connection delays: Finally, alongside the policy changes required to encourage electrification, the Government must ensure that electricity grid connections are available and the process is sped up so that new projects can come online quicker, reducing the risk of extended periods of operating on unabated gas while in queues for connections.

[1] Less energy-intensive manufacturing includes the manufacturing of vehicles, wood products, pharmaceuticals and electronics, among other industries

[2] DESNZ (2024), 2023 UK greenhouse gas emissions provisional figures

[3] HM Government (2021), Industrial decarbonisation strategy

[4] ONS (2020), Annual Business Survey

[5] UK in a Changing Europe (2020), Manufacturing after Brexit

[6] HM Government (2021), Industrial Decarbonisation Strategy