Environmental Audit Committee - Green EconomyWritten evidence submitted by INEOS
Executive Summary
The transition to the green economy must involve, rather than exclude, energy-intensive industries. The UK will continue to need the products manufactured by energy-intensive industries, and it is better to meet this need domestically—not just to protect UK jobs and investment, but also to avoid carbon leakage and ensure that energy-intensive industries support and make the move to a low-carbon economy.
Energy-intensive industries have a large economic and environmental contribution to make to the green economy. They provide tens of thousands of highly-skilled jobs in the UK and are vital to regional recovery and economic growth. The chemicals industry is a key ally in delivering the innovation and products required to realise the vision of a low-carbon future. The Chemical Industry Association calculates that on average for every tonne of CO2 emitted by the chemicals industry, at least two are saved downstream.
Substantial mitigation must be brought forward to protect energy-intensive industries from the introduction of a unilateral carbon price floor in 2013. Without mitigation energy-intensive industries will be overburdened by high production costs, reducing their ability to compete in global markets. This loss of business will undermine efforts to maintain plants and continue investing in low-carbon technology and efficiency improvements. If uncompetitive energy prices force energy-intensive industries out of the UK, we will lose jobs and investment and global emissions will rise as production moves to less-regulated jurisdictions.
Mitigation should not be seen to compromise or water down the environmental objectives of the carbon price floor and the green economy, but to help realise them. In addition to protecting UK manufacturing, mitigation would prevent carbon leakage and ensure that energy-intensive industries have the financial capacity and time to continue to invest in low-carbon technological development and to continue to improve the efficiency of production methods.
INEOS has developed a unique biorefinery process that can convert any biowaste and lignocellulose material into bioethanol and renewable electricity. The technology could play a vital role in meeting the challenges of climate change, energy security and sustainable waste management in the UK. INEOS is ready to construct a biorefinery on Teesside and is urging the Government to further support this exciting technology that could be rolled out across the UK as a real renewables success story.
INEOS recognises that to encourage private investment in new low-carbon technologies there has to be confidence that there is clear policy and Government support. We therefore welcome the establishment of the Green Investment Bank, and the Government’s acknowledgement that support needs to be given to green businesses while the Green Investment Bank is still being set up. In this respect we would particularly advocate the use of loan guarantees based on our experience in the USA.
INEOS
1. INEOS is a global manufacturer of refined oil products, petrochemicals and plastics. Our products are the raw materials for the manufacturing industry and can be found in construction materials, medical equipment, pharmaceuticals, vehicles and computers. INEOS is the largest chemicals company in the UK and the third largest in the world with 61 manufacturing sites in 13 countries. INEOS employs 3,800 permanent staff and over 1,000 contractors in the UK.
2. INEOS is committed to improving energy efficiency and reducing emissions. At Runcorn we have reduced CO2 emissions by over 33% since 1998 through replacing mercury cell rooms with the most up-to-date modern membrane technology. We have plans to reduce direct emissions by a further 75% and indirect emissions by 10%. We are currently completing the construction of a £400 million Energy from Waste CHP plant at Runcorn, which will produce around 20% of our total energy needs from renewable sources.
3. INEOS invests in the green economy. We have developed a biorefinery technology that can turn municipal waste into renewable fuel and electricity. Our technology could provide a local solution to waste management while providing secure green energy.
The Role of Energy-Intensive Industries in the Green Economy
4. INEOS’ production techniques are by necessity energy-intensive. At our Runcorn site, for instance, where we produce chlorine and caustic soda using electrolytic processes, electricity represents around 60% of our manufacturing costs.
5. Energy-intensive industries underpin manufacturing in the UK, producing an array of essential goods including chemicals, steel, glass, paper, aluminium and ceramics. INEOS makes the chlorine that purifies the UK’s water. Our plastics and chemicals are used across industry in construction materials, medical equipment, paint, detergents, telephones and computers.
6. The green economy must accommodate the UK’s energy-intensive industries because we will continue to have need of these products and it is right to meet this need with domestic production. The alternative would be to export jobs and investment, lose tax revenues, and cause global emissions to increase as production moves to less-regulated jurisdictions. It is better that we keep energy-intensive industries within the low-carbon economy rather than lose control of emissions in these sectors. The UK already has better emissions performance than coal-based economies and has ambitious plans to decarbonise the electricity market. If we are serious about climate change mitigation, energy-intensive industries must be included in the transition to the green economy and adoption of low-carbon energy.
7. Energy-intensive industries have a large economic contribution to make to the green economy. Energy-intensive industries employ tens of thousands of people in the UK and are crucial to regional economic recovery and growth. INEOS employs 3,800 permanent staff and over 1,000 contractors across the UK.
8. Energy-intensive industries have a large environmental contribution to make to the green economy—they are not “sunset industries” standing in the way of environmental improvements, but a vital source of raw materials and innovations required to make the green economy a reality. Operating in a highly competitive global market, energy-intensive industries continue to be at the forefront of employing technologies that improve performance, make better use of raw materials and drive efficiencies that reduce waste and energy consumption.
9. The chemicals industry is leading developments in energy efficiency and emissions reduction in the UK. It is estimated that on average for every tonne of CO2 used in the chemicals industry, more than two are saved downstream. INEOS’ products contribute to the manufacture of a range of environmentally beneficial goods including catalysts, insulation, and wind turbines. We also invest in developing the sort of new low-carbon technology that will help deliver the green economy. Our biorefinery technology could help reduce UK emissions and provide energy security while providing a flexible solution to local waste management.
UK Carbon Price Floor
10. Energy-intensive companies like INEOS are acutely affected by fluctuations in energy prices. Energy is our main production cost, and in the face of global competition we cannot pass costs on to our customers. As a consequence it is not possible to operate competitively in jurisdictions where energy is more expensive. It is vital to ensure that in pursuing the green economy we do not force energy-intensive industries out of the UK with uncompetitive energy prices and thereby lose their important economic and environmental contribution.
11. The introduction of a unilateral carbon price floor in 2013 will significantly increase the cost of energy in the UK. Without substantial mitigation this will seriously undermine the competitiveness of the UK’s energy-intensive industries. Through carbon price support rates the Government intends to establish a carbon price of £30/te in 2020 (in 2009 money). This would increase the annual production costs at our Runcorn site by £30 million—1.5 times its average earnings before interest, taxes, depreciation and amortisation. This would simply be an unsustainable situation for the company, and would lead to the site entering into decline and investment being redirected out of the UK.
12. If energy-intensive industries are not appropriately protected from the effect of carbon price support we risk putting in jeopardy thousands of jobs and directing investment out of the economy. This would undermine the green economy, setting back growth, and damaging UK manufacturing and regional recovery.
13. Pricing energy-intensive industries out of the UK would also undermine the environmental goal of mitigating climate change, which is central to the vision of the green economy. Emissions would simply move out of the UK and very likely increase as industry moves to less-regulated and less-technologically-advanced jurisdictions and products have to be transported further as a consequence. In the case of PVC—one of INEOS’ main products—the carbon emissions from production in China are six times higher than in the UK. This process of carbon leakage is already starting to occur.
14. We must be careful not to overburden energy-intensive industries with higher production costs as a result of the carbon price floor because this will only prevent them from continuing to invest in the energy efficiency improvements and low-carbon technology that are vital to the green economy.
15. INEOS welcomes the Government’s commitment to bringing forward mitigation from the carbon price floor for energy-intensive industries this autumn, and is keen to work closely with DECC and BIS to ensure that they understand the gravity of the threat to UK industry and develop appropriate measures. The mitigation announced in the 2011 Budget, such as extensions to Climate Change Agreements will have almost no impact on our business, and further measures will have to be of a very different order if they are to succeed in their purpose.
16. Mitigation should not be seen to compromise or water down the environmental objectives of the carbon price floor and the green economy, but to help realise them. In addition to protecting UK manufacturing, mitigation would prevent carbon leakage and ensure that energy-intensive industries have the financial capacity and time to continue to invest in low-carbon technological development and improve the efficiency of production methods. It is vital that the transition to the green economy is managed in this way, incorporating and utilising energy-intensive industries rather than leaving them out of low-carbon improvements to the detriment of global emissions and the UK economy.
17. INEOS is advocating two approaches to mitigation in the UK that we believe would appropriately protect energy-intensive industries from the effect of the carbon price floor and help with the transition to the green economy. One approach, which already operates successfully in France, is for the Government to facilitate an industry deal that would see low-carbon energy producers supply energy-intensive industries at a competitive fixed price. Low-carbon producers of electricity will receive a large windfall as a consequence of carbon price policies so it seems fair that they should enter into such an arrangement that would ensure the transition to a low-carbon economy, which is the intention of the policies. This is not only a green solution, but also one that would not cost the taxpayer.
18. Although an industry solution would be ideal, the limited supply of competitively priced low-carbon energy in the UK means that it is almost certain that such an arrangement could not be up and running in time for the introduction of carbon price support in 2013. For this reason INEOS is also proposing a scheme wherein energy-intensive users could claim back the carbon price support rates paid on their electricity, modelled on the Levy Exemption Certificates used for Combined Heat and Power stations. This relief could be limited to companies signed up to rigorous environmental commitments, which would ensure that mitigation helps deliver the green economy.
Advanced Bioenergy From Waste
19. INEOS has developed a unique biorefinery process that has the potential to play a vital role in meeting the challenges of energy security, climate change and sustainable waste management in the UK. The INEOS Bio process can convert waste into bioethanol through a combination of gasification and fermentation. The entire process is not only self-sufficient in energy, but exports surplus renewable electricity to the grid.
20. Unlike first generation biofuel, our technology does not use food or cause indirect land use change. On the contrary, it redirects waste from landfill and has an excellent carbon profile. Our biofuel far outstrips the RED and FQD sustainability criteria: a lifecycle GHG assessment carried out by independent consultants Eunomia calculated that our bioethanol achieves around 100% Greenhouse Gas savings when used instead of petrol.
21. INEOS aims to deploy this technology in the UK at our Seal Sands site on Teesside. We are very grateful to have received support from DECC and One North East for the initial stages of the project but are looking to secure further investment to ensure that construction goes ahead. The technology has the potential to be rolled out across the UK providing a flexible solution to waste management while providing green and secure fuel and energy.
22. Our technology has been developed and proven at pilot-plant scale in the USA since 2003, and a first commercial biorefinery is under construction in Florida. This is being supported by the US Department of Energy, which awarded INEOS a grant of $50 million towards the development, and by the Department of Agriculture through a $75 million loan guarantee. The project is at the forefront of the US initiative in biofuels development referred to by President Obama earlier this year, and was cited by his Government as one of the top three of more than 300 projects submitted for support.
23. INEOS is encouraged by the Government’s commitment to providing support for low-carbon infrastructural projects through the Green Investment Bank. We have found that private investment in new technologies can often be reticent due to the uncertainty involved. We welcome the Government’s response to the EAC, which acknowledges that action must be taken to support green businesses while the Green Investment Bank is still being set up. To this end, INEOS would particularly encourage the Government to consider the use of loan guarantees, which have worked so well in our experience in the USA and would not require capital investment. With appropriate support there is no reason that the UK could not be home to Europe’s first full-scale advanced biorefinery. This technology could then be rolled out across the country in a real renewable energy success story.
24. The UK generates more than enough biodegradable waste from household and commercial sources to meet the UK’s demand for bioethanol in 2020 through the INEOS process. The Government’s Waste Policy Review quotes a UK biowaste production of around 100 million tonnes per year. This could produce 10 to 20 million tonnes per year of carbon-neutral bioethanol, depending on the biowaste properties, if used in the INEOS Bio process. Furthermore, the Eunomia report confirms that producing biofuel from waste is an environmentally sensible use of the waste as a resource compared to the alternatives, including composting and anaerobic digestion.
25. The advanced biofuel industry could develop quickly in the UK with the right level of partnership between industry and the Government. The INEOS Bio technology is market ready—the first industrial scale plant is under construction in Florida and should be operational in 2012. The Seal Sands Phase A plant is “spade ready” subject to financing and could be operational in 2013. The INEOS Bio business model is one of technology licensing, hence allowing for rapid deployment. It is a credible scenario that one new licensee project at 150,000 t/yr scale could come on stream each year between 2016 and 2020. Hence, by 2020, there could be five plants operational in the UK, producing a total of 750,000 t/yr of bioethanol from waste. This would count towards 1.5 million t/yr of the RTFO target. The UK consumes around 15 million t/yr of petrol. Hence, five INEOS Bio plants together with existing or planned 1G bioethanol production could provide enough bioethanol to meet the UK’s bioethanol requirements for 2020 from UK production.
26. The current UK policy on fuel taxation, which taxes clean, renewable transport fuels at a higher rate than fossil fuels by energy content, hinders the uptake of biofuels in the UK and, in particular of high biofuel blends such as E85. The revision of the EU Energy Taxation Directive proposes that fuels be taxed on the basis of CO2 emissions and energy content and sets minimum taxation levels. This is in support of EU energy and climate change policy. While it is right for the UK to maintain its independence in terms of setting taxation policy, the UK should take this opportunity to revise its biofuel taxation policy in order to encourage the uptake of the best performing transport fuels in terms of GHG emissions and sustainability criteria. Transport fuels with the best carbon and sustainability performance should be available to the consumer at the lowest cost in terms of “pence per mile driven”.
26 August 2011