May 18, 2024

Decarbonizing UK Industries to Have Minimal Impact on Prices, Finds Study

A recent study conducted by academics from the University of Bath’s Institute for Sustainability has revealed that decarbonizing industrial processes in the UK to achieve Net Zero goals could be achieved with price increases of just 0.8%. The researchers, in collaboration with the University of Leeds, investigated various scenarios for distributing the costs of decarbonization. By analyzing the costs of implementing low-carbon technologies across all industrial processes in the UK, including electrification, hydrogen fuel switching, and carbon capture and storage (CCS), they assessed the impact of distributing these costs among different stakeholders.

Dr. Sam Cooper, one of the study’s authors and a lecturer in Bath’s Department of Mechanical Engineering, explains that many sectors such as manufacturing, construction, food and drink, and mining could absorb these costs with a relatively modest impact on their profits, ranging from 2% to 7% by 2050. For industries such as metal production, cement and minerals, and waste treatment, the cost burden would be higher but still manageable, representing 15% to 46% of their profits.

Additionally, the study explored different ways of distributing these costs, including industries absorbing them, consumers paying higher prices, or companies benefiting from the supply chain sharing the costs. If each sector can pass on the cost increases to customers, it would result in an average final price increase of less than 0.8% by 2050. The study also examined the impact on different income groups and found that price increases would be shared evenly. Certain product groups, such as housing, would experience less than a 0.5% price increase, while household goods could see a rise of over 3%.

The study acknowledges that for many products, the effect of price increases on international competitiveness would be minimal. However, for bulk materials like metals, cement, ceramics, plastics, and bulk chemicals, protection from competitors who do not face decarbonization costs might be necessary. The authors suggest implementing a border carbon adjustment, similar to the EU’s new Carbon Border Adjustment Mechanism (CBAM), to address this issue. Dr. Steve Allen, another author of the study, emphasizes the importance of seizing the opportunity to improve energy and resource efficiency when adopting low-carbon technologies, as it can help reduce costs.

It is worth noting that the study focuses specifically on the costs of decarbonizing industrial processes and does not consider other potential costs that industries may face, such as changes in transportation or electricity expenses. Nevertheless, the findings suggest that the costs of decarbonization are manageable at a societal level. The study, titled “Meeting the costs of decarbonizing industry-The potential effects on prices and competitiveness (a case study of the UK),” has been published in the journal Energy Policy. Its findings could inform industrial decarbonization policies and the support provided in this area as it becomes a prominent issue on the policymaking agenda.

Dr. Cooper stresses the importance of coordinated support in overcoming other challenges related to infrastructure, technology supply chains, and investment risks in order to successfully decarbonize industrial processes. The study provides further evidence that decarbonization can be achieved without imposing exorbitant price increases on consumers.

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1. Source: Coherent Market Insights, Public sources, Desk research
2. We have leveraged AI tools to mine information and compile it