Good afternoon. I am the Chief Executive of the United Kingdom Petroleum Industry Association. We represent the major fuel manufacturers and suppliers in the UK including the six major refineries. Together our member companies support the delivery of some 85% - well over 100 million litres each day - of all road fuels in the UK.
The manufacturing and supply of fuels faces huge change and challenge in the coming years. We are essential to delivering the government’s Net Zero ambition and we want to play our part.
But if we – or any of the other manufacturers and supply chains represented here today – are to make the changes needed, we need the right business conditions to do so.
Those conditions will vary among us –
- For some, it will be essential that there is a strong demand base in the UK
- For others, it may be that the regulators need to adapt more quickly and be more responsive than perhaps we and they are used to
- Or maybe it will be about accessing new green finance at a scale that previously would simply not have been available
- For others including my industry, it will be about all of those factors together
We need policymakers to ensure that the UK be a highly competitive place to invest – a place where businesses want to continue and grow and meet the rhetoric we so often hear from Westminster about the UK becoming a global leader in Net Zero.
For those less familiar with our industry, let me outline a little of what the refineries and wider downstream fuel supply chain delivers.
Since its high in the 1970s, the UK refining sector has reduced from 19 to just 6 major refineries. The closures reflect a considerable reduction in overall demand for oil as other manufacturing sectors shrank in the seventies and eighties. Nowadays, over 75% of all UK oil demand is focussed on the transport sector.
Given the clear move towards battery powered vehicles, you might think that we predict a further decline in the sector.
Yet the great thing about manufacturing sectors is their ability to adapt and transform. And in refining we expect to transform both the inputs and outputs of our sector. We expect to adapt our feedstocks away from crude oils to more sustainable feeds like biofuels, recycled carbon (like crisp packets or old tyres) and even carbon sources captured from other industrial emissions. We also expect change our outputs and increase the number of our products with non-transport uses.
The same processes we use today – distillation, alkylation, reformation and others – can be used not to produce fossil-derived transport fuels, but instead to make:
- sustainable aviation fuels and renewable diesels for trucks and ships
- net-zero compliant chemicals and lubricants such as those needed for wind turbines, or synthetic rubbers used in medicine, or the diverse plastics which make up 50% of an Electric Vehicle by volume
- other products like low emission bitumen which can improve tyre efficiency on our roads
- graphite cokes which are vital in lithium ion batteries which power our Electric Vehicles and iPhones already
- or even low carbon hydrogen which can power not just our own needs, but enable other sectors to reduce their emissions by moving away from natural gas
Although we expect that fuel demand will fall, even if it can be made sustainable, we also see potential for growth of our other products, but more than this, we have a big role to play in the decarbonisation of the wider economy.
So there is potential to adapt and transform, but can we make it happen here in the UK?
We know that the UK has long sought to demonstrate leadership on Climate Change and was one of the first countries to make Net Zero a commitment in law.
But our assessment is that the UK is falling behind in the global competitive marketplac and a lack of investment puts Net Zero targets and energy security at risk.
We are seeing global companies announce plans to put their investment capital in other jurisdictions – and not just in the far east which has been cheap to invest in in recent years, but now also in the US which is trying to entice lost manufacturers back.
Retaining UK fuel manufacturing is important:
The fuels sector is vital to the UK’s energy security – and energy security has become more important post COVID and Russia’s invasion of Ukraine.
UKPIA members have invested over £18.5bn across the UK since 1999 supporting fuel supply improvements and efficiencies and further reducing the UK’s dependence on imported sources, which may be more carbon intensive or subject to geopolitical upheavals.
Our sector is also expert in the delivery of large scale, complex and capital-intensive projects. This expertise is needed to deliver at scale decarbonisation projects in our industrial clusters and deliver the fuels and energy supply infrastructure of the future.
Yet despite these benefits, when it comes to enabling industrial sectors to support the Net Zero transition, the UK is at risk of being left behind internationally.
Multi-billion pound announcements by the US (Inflation Reduction Act) and EU (Fit for 55 Package) highlight the ambition of other countries to attract investment and deliver industrial decarbonisation at pace.
There could be major knock-on effects for the wider economy if the UK does not provide a strong business environment for investment in decarbonisation technologies such as Hydrogen, Carbon Capture Usage and Storage (CCUS), and Sustainable Aviation Fuels (SAFs). We risk losing first mover advantage in these growth areas.
A stable policy and fiscal environment, as well as specific action on carbon pricing and incentives for low carbon fuels are required now if the UK is to be competitive internationally and encourage essential investment.
We know from government that the UK will need to meet Net Zero by 2050 and we are told often of the fantastic progress we have already made towards meeting that goal.
This chart is one used often to show that GDP and decarbonisation can go hand in hand and also that the UK is decarbonising more quickly than our G7 peers.
But if we scratch the surface it is clear that this is not the full picture. If we look at other government figures about decarbonisation – based on what emissions we consume rather than what emissions we create on the UK territory - then we see that we have not made quite as much progress.
Yes our GDP has grown and our emissions have fallen, but is it likely that it is underpinned by a switch away from UK manufacturing, given that our consumption based emissions have not fallen nearly as quickly as our territorial emissions.
This illustrates a sad truth, that the quickest way to reduce our country’s emissions under the current accounting framework is to let our manufacturing base decline, and import everything – ‘offshoring’ our emissions.
Our current system of carbon accounting, therefore, makes it hard for policymakers to implement measures to support investment in the decarbonisation of UK manufacturing, if the sole policy goal is to achieve legal Net Zero targets. But investment is needed to also provide jobs, GDP, and energy security. And on top of this, morally, we should be manufacturing here and taking greater control and responsibility for our own emissions reduction rather than relying on the US, China and others to decarbonise the goods we consume.
So how do we attract UK investment?
Often, sectors like ours are global in nature and companies make investment decisions on the comparative merits of projects globally.
Detailed analysis by UKPIA of the international business environment shows that our manufacturers are at a disadvantage to the UK's competitors with poorer incentives to develop low carbon technologies. These figures are of, course, for the refining business, but they hold true for other major users of gas, electricity and those captured by the Emissions Trading Scheme.
Overall, the cost of our operations in just these three areas is almost double that of our US competitors.
If this large energy and carbon price disparities persist, UK manufacturers will continue to be driven out of business, consequently exposing the UK to volatile imports, increased costs, and poor produce and security.
To break down those figures a little, UK gas costs are hugely more expensive than key US states such as Texas, even though they are lower than Europe.
Even if the new British Industry Supercharger scheme benefits the UK refining sector, our members will continue to operate at a disadvantage which derives from policy areas beyond energy costs.
For electricity, we see the UK suffers a competitive disadvantage against European equivalents of over £200 million due to the cost of electricity in 2022, with US competitors benefitting by the best part of a billion pounds.
Perhaps more easily within the control of our government is carbon pricing.
The costs associated with the UK Emissions Trading Scheme (UK-ETS) have been consistently higher than our competitors in the EU, US Gulf Coast states, China, South Korea and New Zealand.
For the period between March 2021 (when the UK ETS was established) and December 2022, the average UK price was $89 per ton of CO2 equivalent whereas the average EU price was $78. The UK price per allowance has been more expensive than the EU for 88% of the time since the UK ETS’s establishment.
But what about the good news I hear you cry?! Well even there we aren’t moving in the right direction I’m afraid.
The UK corporate tax rate was previously competitive compared to our western peers. However, with the rise to 25% in April 2023 in the UK, this competitive edge has been lost.
I don’t mean to be all doom and gloom, in spite of the figures.
As I said at the start of my time here, our sector is one that can adapt and transform and our member companies are already doing so.
Essar is a major part of the carbon capture project in the North West, while bp and Shell are heavily involved in Teesside with these projects in the government’s first tranche of funding for CCUS.
Phillips 66 in the Humber has installed an 80 tonne plant which produces renewable diesel and sustainable aviation fuels being used by BA.
All our companies from Scotland to Southampton from West Coast to East are active in their respective industrial clusters and see the value in continuing to invest heavily in the UK now and in the coming years.
We’re doing this because we think that, with a few changes, the UK can be a world leader on the delivery of Net Zero.
With the right incentives, the UK can attract investment to develop and implement the low carbon technologies needed to achieve our Net Zero targets.
To ensure the UK is a globally competitive place to invest, the Government must:
- Maintain a stable policy and fiscal environment that makes the UK competitive internationally so that essential investment decisions can be made.
- Offer recognition and meaningful support for all decarbonisation technologies that can offer deployment at scale.
- For us that is about making sure that the hydrogen we produce is counted as sustainable.
- It’s about acknowledging that low carbon fuels can be not just aligned to Net Zero targets but can help deliver early carbon savings now – with the biofuels we delivered last year equivalent to taking over 2 million cars off the road- not something to be sniffed at when ZapMap count UK EVs and hybrids on the road at around 1.2 million just a few days ago.
- In manufacturing we also need to be globally competitive on our costs of doing business and ensuring that other countries cannot unfairly undercut us…
We need to make sure that carbon pricing policy protects against carbon leakage properly – whether that be improving the ETS or moving to a Carbon Border Mechanism such as that the EU is introducing.
In conclusion then, Net Zero is something that we as manufacturers and supply chains need to accept and embrace.
Companies are up for the challenge and would aspire to be world leaders in Net Zero, just as government would wish us to be. But we need their help.
We need a business environment in the UK which unlocks the vital investment needed to make the big changes necessary to transform business, the economy and society. We haven’t yet got this, and without it both the future of manufacturing in the UK and truly achieving Net Zero is at risk.