Teesside's chemical and process industry cluster is key to the regional economy, supporting 20,000 jobs, and with a total GDP of £10bn it contributes over half of the region’s total exports.
But regulations are increasing the price of the energy it uses and forcing it to pay increasing amounts for the carbon it emits.
Many of these businesses are also under increasing pressure from multi-nationals such as Coca-Cola looking for their supply chains to demonstrate a tangible commitment to a low-carbon economy.
There is growing concern that these decarbonisation pressures are putting Teesside and the rest of the UK and Europe’s process sector at a disadvantage.
This is acutely demonstrated by the advantages United States industry has gained through its shale gas revolution.
Gas prices for industry fell by 66% in the US between 2005 and 2012, while they rose 35% in Europe over the same period, according to the European Commission
Consequently Teesside’s leading process industry companies are working together to devise an industrial Carbon Capture and Storage network, working through the North East Process Industries Cluster (NEPIC) and an industry-led group known as the Process Industry Carbon Capture and Storage Initiative (PICCSI).
In a bid to support this Tees Valley Unlimited (TVU), the local enterprise partnership for Tees Valley, has won £1m from the Government under its City Deal initiative to put together a case for an industrial CCS system.
Sarah Tennison, TVU low carbon economy manager, said: “Process and chemical companies have invested heavily in energy-efficiency measures and there is little more they can do in this direction.
“Where emissions of carbon dioxide are an inherent part of the process, a real step change can only be made by implementing carbon capture and storage. At the moment the cost of carbon is quite low but the expectation is that carbon costs will rise over the coming years, increasing business costs.”
“The development of a CCS system on Teesside will secure the future of the process sector and also allow us to attract new businesses into the area to take advantage of this infrastructure.”
A number of Teesside’s high carbon dioxide emitters including fertiliser manufacturer GrowHow, acrylic manufacturer Lucite, steel-maker SSI and industrial gas firm BOC are supporting the CCS network plans.
These are all large energy users and high CO2-emitters and have crucial roles in the regional and national economy. GrowHow produces 35% of the UK’s fertilisers, BOC produces feedstocks for many neighbouring firms, Lotte produces plastic for companies such as Coca-Cola, and SSI is the second largest blast furnace in Europe.
Up until the end of 2012 all carbon emitters were give free carbon credits under the EU Emissions Trading Scheme but from 2013 emitters have had to pay for carbon credits with carbon currently being traded at five euros (£4.10).
The amount of free credits decreases over time and the European Steel Association says that even the most efficient of steelmakers will have to buy up to 30% of their needs in emission permits by 2020.
When the EU carbon market was launched carbon was being traded at $30 a tonne, but has since fell as economic and industrial activity declined during the financial crisis.
But late last year the European Commission agreed to withhold the release of further carbon credits in a bid to force the price back up towards $30.
Some of the larger users such as Sembcorp and SSI, which generate their own energy, from a separate fuel plant – in the case of SembCorp mainly biomass and SSI coal – they have an additional cost for carbon through the Carbon Floor Price.
TVU eventually want to see additional Teesside-based companies join the CCS network and hope it will attract new industrial businesses to locate to the region to take advantage of the low-carbon infrastructure.
It estimates that an initial scheme could abate 5m tonnes of CO2 and could eventually cut annual emissions by 15 million tonnes with up to 20 industrial users connected to the system.
SSI is one company which is supporting the creation of a CCS network. A spokesman said: “SSI is supportive of the City Deal and the aim of developing an industrial carbon capture and storage network on Teesside.
“This network has the potential of bringing many benefits to the whole of the area. With rising energy and environmental costs facing the whole of British industry, including SSI, we see this as a potential breakthrough technology in reducing our environmental impact, whilst recognising that there are significant challenges which need to be overcome before it is sufficiently developed to be adopted.”
Tennison added: “CCS is not only essential for the UK to meet legally binding carbon targets, but also to supply increasing consumer demand for low carbon products.
“ For example major international corporations, such as Coca-Cola and Tesco, are demanding low-carbon raw materials for their plastics; in the future, companies who cannot meet this demand will not win the contracts.
“A CCS network will allow companies to compete for an increasing market share for low-carbon products, and will act as a unique selling point for the UK, ensuring the future viability of an integrated industry.”
Mark Lewis, at the NEPIC is leading its PICCSI team.
He said: “Industry has done all it can to reduce emissions. It has the carbon price it has, at the minute this is quite low, but this will rise over the coming years and this is where it becomes a challenge.
“The impact of the price of carbon will be felt over time and make Teesside and the places in Europe without Carbon Capture and Storage uncompetitive.
“This is something we want to avoid. Our long-term goal is to make this feasible and mitigate the effect of a rising carbon price.
“We make the things which are needed to promote and develop a low-carbon economy such as the insulation products for domestic and commercial properties.
“There is growing competition from competitors such as Rotterdam which is pressing ahead on its plans for a CCS network. There are thousands of jobs at stake. CCS is the only answer.”
“CCS will not only safeguard and increase the competitiveness of existing companies in Teesside, but crucially it will also create one of the very few locations within Europe and the world where companies can locate and satisfy the increasing demand for carbon-free chemicals, plastics, steel, and energy.”
Teesside’s industrial companies cannot afford to go it alone on such a capital-intensive programme, prompting the joint approach.
TVU added: “Although carbon abatement from industrial CCS is cost competitive, the lack of an investment mechanism means that no private company will develop an industrial CCS scheme. The public sector needs to develop the first stages of industrial CCS to give private investors the confidence in the costs and returns available. If industrial CCS is not pursued by the public sector it is unlikely that industrial CCS will be a reality before rising carbon prices force companies to relocate out of Europe, and the opportunity to attract further investment will be lost.”
David Cameron's plans
Last week’s European-wide decision to ditch national renewable energy targets can be seen as a victory for Prime Minister David Cameron, pictured, in his aim to support the growth of CCS in the UK and the development of a homegrown shale gas industry.
The UK is currently bound to achieve a renewable energy generation target of 15% of total energy use by 2020, but last week’s European Union determined there would be no binding national targets beyond then.
Instead it has said it wants to see a Europe-wide renewable target of 27% by 2030 and a further cut in greenhouse gas emissions to 40% of the levels in 1990.
Cameron had pressed for an end to national targets as he believes the UK will be able to achieve its greenhouse gas emission cuts by building more gas-fired power stations, and he balked at setting a binding renewable target.
He wants to see a new generation of gas-fired power stations fitted with CCS and the Government is currently ploughing £1bn into the White Rose CCS project in Yorkshire to encourage that.
Last week’s EU decision has come as a major blow to the green lobby who say large-scale investment in shale gas risks locking the UK into a reliance on fossil fuels for decades.
They want to see the UK power generation network virtually decarbonised by 2030.
Carbon capture and storage
There are already some small-scale CO2 capture schemes in operation on Teesside. Fertiliser manufacturer GrowHow currently captures CO2 from one of its chemical processes for use in the food and drink industry.
Some of this is used by North Bank Growers in Billingham to help grow tomatoes, which are sold in the region’s shops and stores.
But it is the CO2 from each operator’s furnaces which cannot be effectively captured yet and it is this which the Teesside industrial CCS project is targeting.
The Teesside CCS scheme, which involves the installation of an extensive land and underwater pipe network, envisages transferring the captured CO2 for storage in saline aquifers under the North Sea, or for use in enhanced oil recovery in the North Sea oilfields.
TVU developed earlier plans for a CCS facility based upon a new gasified-coal power station at Wilton, but this is on hold while the Government backs plans for similar schemes in Yorkshire and Scotland.
There are no large-scale CCS schemes for the power generation sector in successful operation anywhere in the world, due to the cost of retro-fitting existing plants.
And it is estimated that CCS technology will more than double the existing build cost of a new fossil fuel power station.