BLOG | Antonios Katris & Stephen Duah Agyeman | May 2024
Research from the Centre for Energy Policy finds that introduction of carbon capture in the Scottish chemical industries could have negative implications for the competitiveness of the industry. However, the evidence also suggests that these negative impacts could be limited if there is a UK-wider coordinated approach to the implementation of carbon capture.
The critical role and nature of carbon capture, utilisation and storage (CCUS)
The UK Climate Change Committee (CCC) identifies carbon capture usage and storage (CCUS) - the technique where carbon dioxide emissions from fossil fuel use and/or industrial processes are captured and either transformed in other useful goods or permanently stored - as essential for the UK to achieve its 2050 net zero target. The UK Government has acted upon CCC advice and is supporting a sequential rollout of CCUS in industrial clusters across the UK; three clusters in North East and North West England and one cluster in Scotland.
But CCUS is not a single, uniform activity. It consists of different components, each with potentially different effects on the wider economy as well as individual industries. For instance, the transport and storage (T&S) of captured CO2 component of CCUS is essentially a new kind of economic activity within the UK economy that CEP has studied extensively. CEP work also looks at the impacts of carbon capture, where the new equipment required by industries to capture the CO2 emissions they generate introduces new production costs and affects their output prices. There are also different carbon capture options, where the emissions are captured post-combustion (or post-production more generally) or pre-combustion with a switch away from fossil fuels and towards low- or zero-carbon alternatives, such as hydrogen. The choice between the different approaches can be determined by factors such as the production procedures taking place or the operational needs of different facilities, just to name a few.
The wider economic implications of pre-combustion or post-combustion carbon capture
Upon a review of the existing literature, it is apparent that there are clear differences in terms of the equipment, capital, and the energy required, depending on whether carbon capture takes place pre- or post-combustion. Further differences also emerge as a result of the exact capturing technology used.
Our research focuses focused on two broad post- and pre-combustion carbon capture approaches, using the Scottish chemical industries as a case study and exploring the impacts of carbon capture on the Scottish economy. The most clear finding is that the introduction of carbon capture in the Scottish chemical industries leads to additional production costs, which in turn push the price of Scottish chemicals upwards. This has important, negative, implications for the competitiveness of Scottish chemicals, making them less attractive for potential users in the Scottish, UK and international markets as they become more expensive than chemicals produced outside Scotland.
This would lead to a slowing down of activity not only in the chemical sectors but across the Scottish economy. The price impacts are mainly driven by the requirements for new capital, meaning that the pre-combustion carbon capture, which requires more additional capital than post-combustion carbon capture, leads to higher price impacts. For example, introducing pre-combustion carbon capture to Scottish petrochemicals could lead to a price increase of 3.12%, instead of 2.19% if post-combustion carbon capture was introduced.
The importance of a UK-wide approach to carbon capture use
An important finding of our work is that the extent of the impact to the wider economy depends on whether Scottish chemical industries act unilaterally or if there is a co-ordinated UK-wide approach to carbon capture use. If Scottish chemical industries act unilaterally, then they may have to face costs that other chemical industries in the rest of the UK do not face. On the other hand, a co-ordinated UK-wide approach could lead to all UK chemical industries facing similar costs associated with the introduction of carbon capture. The latter seems to be protecting the Scottish economy, as it creates a level field across the UK market; this is key as Scottish chemicals are mostly used either within Scotland or within the rest of UK rather than being exported abroad. To quantify the differences, a unilateral adoption of carbon capture by Scottish chemical industries could lead to Scottish GDP impacts of -0.15% (£262 million), whereas a UK-wide adoption limits the Scottish GDP impacts to -0.12% (£204 million), while offering some protection for the output and employment of Scottish chemical industries.
Alternatively, the Scottish chemical industries and the wider Scottish economy could be protected if the UK Government was to offer subsidies to reduce the price impacts of carbon capture. The cost and expected outcomes depend on which carbon capture approach is subsidised and what is the objective of the subsidy (easing the price pressures, levelling the cost of different carbon capture approaches etc.), introducing a key policy consideration in terms of how any potential subsidies may be structured.
This is the overarching lesson emerging from our work. As the introduction of carbon capture may have important implications for government agendas, such as ‘levelling-up’ and ‘just-transition’, it is essential for policy making to reflect the implications of different carbon capture approaches. It is key to identify where unilateral action is preferable to co-ordinated adoption, as well as when and where targeted support may be necessary to ease the price pressures and protect the industries and wider economies involved. Our analysis has focused on the Scottish economy but undoubtedly the impacts will spill across the UK economy, meaning that UK-level policy interventions will be necessary to deliver the outcomes better serving the UK policy objectives.